Jeff Bezos started the on-line book store, Amazon.com, in July, 1994, when he settled in Seattle from New York. Over the next twelve months (to July, 1995), the company was taking shape and the first sale was recorded during this period. From this point, the company expanded at an astounding rate and, by the end of 1999, its sales hit $1.6 billion. Amazom.com is customer focused firm. It places most of its efforts in improving systems aimed at making customer experiences better than the experience they receive from any other company with an aim for retaining the customer. Jeff Bezos decided to start the company after he noticed that the internet usage was increasing rapidly. His main focus was to provide a permanent experience change in purchasing books. The company then started diversifying to other products like DVDs, music, electronics, and clothes, among others.
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The company has experienced tough moments especially due to competition from other online-based retailers like Walmart, but the company had such a success that it became the biggest online retailer. The company’s growth has been unprecedented due to their focus on customer relations. The organization realized that the customers are their biggest assets, therefore used all inventions to attract and retain them. According to DePamphilis (2010), the company has taken advantage of its brand visibility for expanding its business through strategic partnerships, which seek to use the company’s platform to merchandise their goods and services. While the growth of Amazon has been phenomenal, the company is starting to face some threats that may jeopardize its position as the leader in online retailing business.
This essay will look at the company since its inception to the present day and how its performance has been progressing. The pper starts with a discussion of the company’s business model and how it operates. The essay then analyses the markets within which the company operates and the competitors that threaten its functioning. Lastly, the paper discusses the financial statements of the company and gives a trend analysis over the last four years (2011-2014) with an aim at determining whether the company’s position as the market leader in online retailing is translating into increased revenues and operating profits.
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The mission statement for Amazon is “to be the Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest prices possible.” Amazon incorporates its mission statement in their strategic goals and everyday operations. The company’s mission is mainly focused on its biggest and most important stakeholder, the customer. This mission has been the guiding principle since the inception of Amazon and continues to be the steering wheel as the company hopes to expand its operations in the future. In a statement of the shareholders through their newsletter, Jeff Bezos gave two directives regarding their customer service strategy. One of the directives was that the company puts customer needs ahead of its own, while the second one was to give their customer great experience. This is a clear indication that the company places a lot of emphasis on customer service and believes that great customer experience will be the root of the continued company success.
The company’s mission statement also acts as its vision statement. While this sounds uncommon in the business and academic world, it is clear that the company’s major focus is on customers and on the fact that they have it covered in the mission statement reasonably enough not to have a separate vision statement. However, it is important to note that such strategy has helped the company to improve at the same time its customer base and revenues. The company’s revenue as of 2009 was 24 bilion dollars but it rose to significant 74 billion in 2013.
Amazon’s success is largely attributable to the strengths that help it to operate and beat the ever increasing competition from other online businesses. One of the company’s strengths is its strategy of selling diverse assortment of products. Among the products the company sells online are industrial items, books, health products, music, movies, jewelry, and digital downloads. This gives the company the ability to sell goods to a wide customer base. The company is able to attract shoppers from all ages for buying its products starting from toys and baby stuff, music, books, and movies for students, teenagers, and young adults and finishing with books and industrial items for older generation.
The second strength is cost leadership, which aims at prices that are lower than the ones offered by other competitors (DePamphilis 2010). With this strategy, company’s goal is to take economies of scale in production. Amazon offers a wide variety of products, which makes it attain economies of scales and attracts people who are looking for a one-stop shop. Consequently, the company has become one of the largest online retailers in the entire world.
The third strength that enables Amazon to stand out among its competitors is providing goods and services that are of superior quality and at affordable prices. The company is reliable and convenient in terms of delivery, and it ships its goods promptly to the customers. This couples with excellent customer service, therefore continuing to attract customers. The company has also an efficient distribution and logistics as discussed in section 5.0 of this piece. The company has fulfillment centers, which ensure a fast dispatch of goods and services at minimal costs. Moreover, the company made investments in IT and a customer service system. This system, referred to as the Customer Relationship Management, enables it to document each and every customer’s purchasing behaviors, which, in its turn, helps it to offer individual items for the customers or the ones based on their inclinations derived from the purchases they made or items they searched for previously (Giachetti 2010).
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Amazon also derives one of its strengths from being a major global brand. Everyone recognizes the company because of two major reasons: the first one is that Amazon was among the original dotcoms and has been able to develop a market share of more than 30 million customers. The company has also incorporated various technologies into its website to make it attractive, easy to use, and customer friendly. Some of the features incorporated in the website include gift directors, product information, safe payment methods, and editorial reviews. This enables customers to get information of the products they intend to purchase even before buying them.
One of the major weaknesses the company faces is its debt obligations. In 2013, the company’s debt rose from $3,830 to $5,181 in 2012. This represents a 35.3% increase in the total debt, which means that the company may lack for the ability to obtain additional base for future investments. Furthermore, this implies that the company has to set aside a large portion of its funds to repay the debt and the interest. This also means that the company has reduced cash flow to fund its expansion strategies such as marketing, developing, and product offering. The other weakness the company encounters is its diversification strategy. While the company aims at diversifying its portfolio, it continues to get scattered itself too wide. This means that the company is wavering from its initial core business of selling books over the internet to other product lines. In this way, the company can start to lose focus on its strategic advantages and lose the loyal customers.
The other weakness arises from cheap products strategy. Many analysts argue that the company has been operating on almost zero margins, being a model that has major impact on its profitability. Despite the fact the company is making high revenues, this does not translate into actual profits. Eventually, this might affect the continuity of the business. Additionally, the company offers free product shipping for its customers, a feature that has another negative effect on the Amazon profits. The next major weakness of Amazon is the lawsuits it faces, some of which are actual while others are potential. Any form of legal proceeding consumes a lot of time and company’s funds regardless of whether the proceeding is won or lost. Most of such lawsuits relate to antitrust issues, employee affairs, patents, and product liability, among others. All the cases filed against the company have a negative effect on its success even without mentioning the effect on the brand itself.
One of the opportunities available for Amazon is strategic partnerships with other companies. The company has been selling its expertise as an online retail pioneer to some of the largest companies in the world. In recent times, Marks and Spencer made an announcement that it would be pursuing a joint venture with Amazon for an online sale of its products. Other partnerships include deals with Toys-R-U, NBA, and Target. Amazon can continue capitalizing on its experience to make more partnerships with other companies and to make extra revenue (DePamphilis 2010). The other opportunity available for Amazon is the expansion of product range under its own brand instead of focusing on selling other companies’ products. Amazon has already build a name for itself, and introducing new products under its own brand would not be difficult. This would also help the company focus on its strategic objectives. The company should also consider opening new stores in some regions where its presence is not very noticeable. Such regions include parts of Europe, Asia and Africa where online trading is on the rise. Lastly, the company should consider establishing physical stores or businesses in some markets. These stores would act as pickup points from where customers can take their goods. This can help to improve the brand’s market share in the given regions.
Despite the fact that Amazon has many opportunities, there are major threats that may hinder it from taking advantage of them. One of such threats is the foreign exchange risks. The company operates in many countries that have major markets, which are very prone to fluctuations in foreign exchange. In 2013, foreign exchange profits represented 40.2% of total Amazon’s revenue. However, the revenues decreased by $1.3 billion due to the same reason. This means that a major change in foreign exchange has a considerable impact on the Amazon operations. The situation is made worse by the fact that the company does not have control over foreign exchange fluctuations since they arise due to market forces unrelated to the company.
The second major threat is market competition since the company operates in a very competitive environment (Mennen 2013). Currently, every company is trying out online shopping to appeal to new customers, which is becoming a threat to the existing online retailers. Some of the competitors include eBay, Netflix, Yahoo Inc., among others. The Amazon’s competition is described in detail in section 4.0 of this essay. The third threat to the company is stringent regulation from the government. These regulations include policies concerning taxes, data protection, privacy copyright, consumer protection, and electronic waste. Moreover, though most of the states and currencies do not collect taxes on online sales, there is a trend of states requiring retailers themselves to collect taxes. This will result in an increase in administrative burden for Amazon. Additionally, this will have an impact on the company’s profits. Lastly, data protection and identity theft is another threat that greatly affects online retailers.
Amazon wins the position among biggest online retailers, and its growth has been tremendous since its inception in 1994. According to Mennen (2013), Amazon is starting to face stiff competition not just from other online retailers but also companies that have both online and physical stores. When it comes to the sale of books, music, audiobooks, and other forms of written materials, Apple Inc. is the major competitor since users of smart phones are able to get these products in comfort directly from their homes or any other places. Apple Inc. has also developed applications that help its clients to access almost anything they need by a single click of a button. Moreover, people are finding it more efficient to use a mobile phone for downloading movies, music, books, or even magazines. In addition to this, one does not need to have a computer to access these materials. For such a reason, Apple Inc. poses a big threat to Amazon. When considering other services like web search, Google is the main competitor as many people, especially the new generation who are addicted to web services, conduct most of their search through Google.
When it comes to online retailing, Walmart is a key competitor. It has been offered Amazon tough competition as it establishes its own online store. Walmart has been implementing an online locker system where its customers will be able to buy and pay for goods and services online but have the option of picking them at a place of their convenience. Additionally, Walmart has recently started tests upon the same day delivery in four major cities, which makes it retain its position among four biggest online retailer. Though Walmart makes only about $9 billion from online sales (which is less by a quarter of what Amazon makes), the recent activities aimed at improving online sales is a real threat to Amazon. Furthermore, it is important to note that Amazon lacks the physical structure base that Walmart enjoys, which might work for the latter’s advantage. Other online retailers and auction websites like eBay also gives customers an option to buy products similar to those sold by Amazon sometimes at a lower cost.
Another competitive threat the Amazon.com faces is substitutes. Despite the fact that online retailing has been on the rise in the last decade, the threat of substitutes will always remain real from the physical stores and retailers. The physical retailers can easily replicate the products that online retailers sell like books, movies, clothes, and electronics, among others. Whether the physical retailers sell genuine products or prototypes, this will remain a threat to Amazon. Additionally, the physical stores give customers an experience that the online ones cannot offer. For instance, when a customer wants to buy clothes, the physical stores give the customers an opportunity of trying on the item before paying for it, an experience that is not available for online shoppers. In the case of online retailers, customers have to receive the products first, try them on, and if they are no comfortable with the purchase, they have to return items to the supplier. This takes extra time for another delivery, an inconvenience that forces shoppers to visit physical shops.
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There is also a threat for new entrants into the online shopping market. At the moment, this threat does not seem actual so far because Amazon has already invested enough in infrastructure that any other new entrant will have difficulties to match. Despite this fact, there has been indications that other companies might come in the near future. An example is Shoprunner.com, which is an online platform that collects established retailers seeking to attract and access online shoppers. Shoprunner.com collaborates with such retailers without any concessions necessary to partner with Amazon. Amazon can expect similar companies emerging in the future. Moreover, the inventions and innovations from companies like Apple, HP, and Samsung will offer customers an option to purchase virtually everything they need, which will be a major blow to Amazon.com.
The management of Amazon.com hold their organizational structure to be one of the best in the world. They encourage engaging innovations among their staff by rewarding them. The management holds that there is open communication between regular staff and the supervisors, which encourages full of trust working environment (Mennen 2013). However, there have been complaints from former staff who consider that though the company has a large customer base, it does not pay as much attention to its employees as it does to the customers. The communication lines are closed and the organization is highly bureaucratic that follows a top-down communications. There have been complains of long working hours and deplorable working conditions. There have also been complaints that the employees desks are made from old doors and the computers are placed on top of old telephone books to avoid purchasing monitor stands (Dessler 2001).
One of Amazon’s strategies on customer focus besides the management systems that has already been discussed is that the company innovates at every single moment new ways in defining the type of value they offer to the customer. A perfect example is the use of emails before and after a purchase made by any customer. The second example is the easiness of navigate the website, which makes it user-friendly. The other feature of the distribution channel is the choice of products that the company offers to its clients. Amazon offers a wide variety of goods allowing its customers to browse through before buying anything.
Initially, the company used fulfillment centers as its major distribution models. The organization started with two centers located in Delaware and Seattle. The Seattle facility was 93,000 square foot while the one in Delaware was 202,000 square foot. Consequently, the company added other fulfillment centers in Lexington, Campbellsville, McDonough, Coffeeville, and Fernley. Amazon also expanded in Europe, especially in Germany and the United Kingdom. The company also established fulfillment centers in these countries. Amazon.com defines its activities and business model through the terms of product sales, services sales, and advertising. It is better to include the activity of the company due to specific areas into such categories: online retail, special internet services, and Kindle reader services (Kaufman & Sternberg 2010). However, we need to underline that major functions of such distribution model include order processing, warehousing, inventory management, and transportation.
If we are speaking about Amazon.com as an online retailer, we need to underline that it could be presented as the traditional retailer that is selling the same products at lower prices by using specific instruments. However, Amazon tends to possess itself as the representative of the biggest selection on earth. The company sells huge variety of different products through the internet for the whole family. Firstly, the company started its activity as the online book seller and later became the seller of music, movies, and household goods. However, due to their distribution model, we need to mention that they did not stock goods they are used to sell through their website.
One more aspect of their retail strategy lays in the usage of their websites as the channels for other retailers in order to sell their products by taking some percentage from every purchase. Amazon.com calls them as a destination website. Nevertheless, such distribution strategy has influenced Amazon position on the market and determines it as a leading long tail retailer. This long tail retail model helped Amazon to possess the used products’ sale through their own selling marketplace. Actually, this idea was developed to work with eBay, as in such a way there is a long-lasting revenue stream for the company without a need to stock products in the warehouses. While speaking about advertisement, we need to pay attention that it is carried by sellers and Amazon by taking a certain part from every sale for the provision of their advertising channel.
Another area of Amazon`s activity deals with the internet affairs and services. However, this element of their distribution system is connected with both original retail business and Kindle reader services. Nevertheless, this internet branch of the Amazon business could be considered the best strategy to cover most of the consumers (Kaufman & Sternberg 2010). Hence, another business activity is concentrated on the Kindle reader services. Thus, Kindle tablets are helpful and easy to use. Firstly, this device was designed as an electronic book reader, and later Kindle became totally functioning tablet that could be used as a media device. This could be considered as a model due to which Amazon is both manufacturer and traditional retailer in the market. Actually, now Amazon operates 138 distribution centers all over the world, and such system helps it to provide best services for their consumers.
One of the key features of the current model is innovation or being first in the market. The company takes time to determine what the customer really needs; then it devotes itself to fulfilling those demands. This distinguishes the company from other companies. For this reason, more than 60% of Amazon’s customers are return customers due to the excellent customer service. The second feature of the distribution is value-added partnerships for instance, the partnership between Amazon and Yahoo for the global merchant programs (Simchi-Levi 2005). The company also partners with other market players in terms of selling their products, therefore getting a percentage of the sales. The other feature of the network is the immense use of information technology. The company has systems that accept and validate customers’ orders, plan and place the orders with the merchants, manage and assign customers and ship products.
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Amazon.com believes in the advantages that come with empowering their employees internally (Lussier 2011). One of the programs that the human resources department employs is Career Choice, a program the company pays 95% of tuition fees for courses that its staff chooses to undertake without considering if a certain course with be relevant to their career at Amazon. The company believes that there are staff who wants a career at Amazon while others will work for Amazon as a stepping stone to the others’ dream careers. For this reason, the company offers to help its staff to achieve their dreams through the relevant courses. The second program is the ‘Pay to Quit’, where employees are offered some money to quit. After the first year of working with Amazon, associates are given an offer of $2,000 to quit, which increases by $1,000 every year up to $5,000. The reasoning behind this is to encourage the staff to think about what they really want. Amazon believes that employees should work where they are happy, and if they aren’t happy, the company pays them an amount that will be sufficient for them to chase their dreams.
The third program is the Virtual Contact Center, an encouragement center for innovations. This innovation allows the employees to serve their customers in comfort of their homes (Kaufman & Sternberg 2010). This reduces the options of experienced staff resigning due to other personal issues like family obligations. The center is one of the quickest growing sites for Amazon. The company also focusses on experienced employing veterans who can think beyond the expectations, provide great inventions, and offer excellent customer service.
As mentioned earlier, the company has made major investments in information technology and customer service systems to ensure that customers’ matters are considered when needed. This has been the key behind the company’s emergence as the biggest online shop. The internet has brought a lot of changes in the operation of businesses and distribution channels. Almost all businesses, retailers, and wholesalers have internet fulfillment distribution centers, but they had problems striking a balance between the fulfillment centers, managing orders, and product information (Giachetti 2010). However, Amazon.com has proved that the centers and multi-channel logistics is the norm in operating business. Amazon.com offers good customer service not just to customers, but also to the distributors and merchants that sell their goods through information technology. For this reason, many companies are turning to Amazon.com to find out how they have become successful and seeking how well they treat customers and distributors together. Consequently, such partners become outsourced logistics providers. Companies from all around the world are contacting Amazon.com to find out how it attained its success in online business (Kaufman & Sternberg 2010).
6.0 Financial Statements
Amazon has be having impressive books of accounts from its inception. In this section, we review the performance of the company for the last four years and check the trend shifts in revenues, gross profits, net profits, expenses, and debt (Yahoo Finance 2015).
Amazon’s revenues have been increasing from 2011 to 2013, and the revenues have almost doubled. In 2011, the total revenues were $48,077,000; in 2012, they increased to $61,093,000; in 2013, they increased to $74,452,000, while in 2014, they increased to $88,988,000. The gross profit rose from $10,789,000, $15,122,000, $20,271,000, and finally to $26,236,000 during 2011-2014 respectively. However, the net profits have not followed the same trend for the same period. In 2011, the net profits amounted to $631,000; in 2012, the amount reduced drastically to losses of $39,000; in 2013, the profits again increased to $274,000 but dropped to an all-time low of $241,000 in losses. The decrease in net income is attributed to its low price strategy, which is due to the company’s spending much money on free delivery of products to customers. This is also attributed to the increase in the interest expense, arising from the increase in the amount of long-term debt. As shown in the balance sheets (section 6.2), the amount of long-term debt has increased drastically from $255,000 in 2011 to $8,265,000 in 2014.
Amazon.Com is one of the biggest companies in the world that has mastered the art of online trading and continues to dominate in that field over many years. The company’s main vision and mission is focused on excellent service delivery for its customers, which ensures that the customers will return to its website for more purchases. To achieve such customer experience, the company has made immense investments in information technology and customer service management system, which have been the very key in quality delivery of services to its customers. In the beginning, the company started as an online books store, from where buyers would get any books they wanted. However, after the years, the company started diversifying into other products to ensure its sustainability. This also ensures that it offers a wide variety of products to its customers with the ultimate goal of becoming a one-stop online shop. In addition to this, the company started making partnerships with other organizations so that it can use its existing infrastructure for selling goods and services. This strategy has been an additional source of revenue for the company.
While the company has been successful in the online business industry, it faces some threats and weaknesses that may hinder continued growth. Competition is becoming tough every day because of the existing online retailers and new entrants. Furthermore, the company strategy on cost leadership is hindering profits maximization. However, Amazon.com can deal with such threats and weaknesses by expanding its brand and opening new shops in new markets. Finally, the company should continue with the strategic acquisitions in order to widen its market share (DePamphilis 2010).