Core Competencies and Competitive

Advantages
Jaclyn Parton, Ray Marocco, Hannah Ricker, and
Elizabeth Yanak
 
Table of Contents
1.0 Core Competencies: Amazon .................................................... 3
Core Competencies Map .............................................................. 5
2.0 Cost Advantages: AmazonFresh ................................................ 6
3.0 Differentiation Advantages: AmazonFresh ................................ 8

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Core Competencies
Amazon’s mission is “to be Earth’s most customer-centric company,
where customers can find and discover anything they might want to buy online,
and endeavors to offer its customer the lowest possible prices,” and the
company truly breathes this throughout its practices. Three main core
competencies drive the overall advantage that Amazon enjoys: its culture,
customer focus, and technology infrastructure1.
The culture created by the employees and fearless leader Jeff Bezos
allows for the innovation of new technology. Part of the success of Amazon is
due to its ability to proliferate across industries, and this can be attributed in
part to the Amazon culture. One strong piece of specific culture that is a core
competency for Amazon lies in the company’s ability to keep teams personal
and creative. At Amazon, the “two pizza rule” governs team organization, and
no group can be larger than the number of people who could share two pizzas.
Small teams allow Amazon to work from the bottom-up and ignite ideas that
would be lost in the noise of a larger group. These groups permit employees to
work intimately with each other, while gaining the benefit of different voices
and point-of-views.
The overall customer-centric nature of what Amazon does enables
differentiation advantages of perceived service quality, and brand reputation.
An Amazon experience is consistent across platforms, products, and brand,
which adds a level of consistency and ease-of-use for new and returning
customers. Because Amazon focuses on the customer, it can ensure
satisfaction, or take measure to increase positive experiences. Positive network
externalities stem from customer centric attributes. The relationship is mutually
exclusive, where Amazon is able to expand because of increased market share,
and customers are reaping the benefits of widespread use.
Technology only strengthens the culture and customer-centric nature of
Amazon. Through the built up network externalities, Amazon has been able to
transition to total ecommerce domination. Amazon’s technology infrastructure,
comprised of its innovative software, lean distribution, and logistics has
allowed the company to become the global ecommerce leader.
Amazon consistently employs a lean distribution strategy, including
waste prevention, standardization, and continuous improvement2. Jeff Bezos’
customer-centric view allows the company to effectively manage their waste in
terms of time (such as employing the quickest delivery options), or allowing
third-party vendors to use it’s digital and physical infrastructures like Amazon
Web Services and its fulfillment centers. Amazon is known for its emphasis on
continuous improvement and utilizes a Kaizen strategy in many of its practices,
                                                                                                               
1
"About Amazon." Amazon.com. Web. 3 May 2015.
2
"When Toyota Met E-commerce: Lean at Amazon." McKinsey Quarterly. McKinsey&Company.
Web. 3 May 2015.

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such as A/B testing on its website and beta testing in newer offerings such as
AmazonFresh and Dash3.
Amazon runs a well-oiled logistics machine that includes 90 fulfillment
centers worldwide, as well as its own trucks and even drones to quicken and
simplify delivery4. Amazon combines these strategies with software and web
design that is customized to each individual customer: the company creates a
customer-centric experience through its detailed analytics and vast knowledge
of each visitor, and is able to provide the best product recommendation system
because of it. The online buying experience is consistent across products and
sellers, is informational, and gets the customer hooked to the easy purchasing
experience provided on Amazon.com. Examples of Amazon’s technology
innovations seen within AmazonFresh include Dash and Echo, both of which the
company has leveraged as part of its technological differentiation advantages.

                                                                                                               
3  Varian, Hal. "Kaizen, That Continuous Improvement Strategy, Finds Its Ideal Environment." The
New York Times. The New York Times, 7 Feb. 2007. Web. 3 May 2015.
4
"A Rare Peek Inside Amazon’s Massive Wish-Fulfilling Machine." Wired.com. Conde Nast
Digital. Web. 3 May 2015.  

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 Core Competencies Map

Ability to
Iterate

Innovative
Jeff Bezos Culture Community

Core Logistics
Customized Competencies

Customer Customer Technology

Analysis Centric Infrastructure

Software

Informational
Quick &
Easy
Lean
Distribution

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Cost Advantages
For the regular online grocery shopper, AmazonFresh offers the most
competitive pricing. In a side-by-side comparison done by Geekwire.com, the
same order of 11 items from AmazonFresh, Safeway, and Instacart cost $50.41,
$55.65, and $70.42 respectively. The amount for each is without tax, delivery
fee, and gratuity. It was also noted there was no significant difference in quality
between the three providers. For the products alone, Amazon offers the lowest
price to the customer. Instacart’s price is 39% higher, though it should be noted
that Instacart had a lower price than Amazon on two items. Safeway was only
10% higher for the groceries alone, but an order of this size would have a
delivery fee of $12.95,
where it would be free for
both Fresh and Instacart5.
Each company
structures its delivery fee
differently. AmazonFresh
has a $299 annual fee;
customers get free
shipping for orders over
$50. Instacart has a
similar structure, a $99
annual fee with a
threshold of $35 for free
delivery. Safeway charges
$9.95 for deliveries over
$150 and $12.95 for
under $150 with no
membership program.
Assuming an
AmazonFresh customer
makes a 50-dollar order
once a week, the yearly
fee would come out to
$5.75 per order. For
Instacart, it would only be $1.90 for orders over $35, but the marked up prices
will compensate for the small membership fee. If the additional markup is 39%
as it is in the comparison test, an Instacart customer will end up spending
$709.80 in markups for a year of $35 orders. As the chart below shows,
Instacart would have to lower its markups below 11% in order to gain cost
advantage over AmazonFresh.

                                                                                                               
5  "Grocery Delivery Wars: How Amazon Fresh, Instacart and Safeway Stacked up in Our Tests -
GeekWire." GeekWire. 17 Dec. 2014. Web. 3 May 2015.  

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 Markup Rates for Online Grocery Delivery

Markup Rate 10% 11% 12% 13%

$35 Delivery $3.50 $3.85 $4.20 $4.55

52 Deliveries/year $182 $200.20 $218.4 $23.60

AmazonFresh benefits from economies of scale. While Safeway and

Instacart source food from local grocery stores, AmazonFresh uses warehouses
that serve large areas. Amazon’s investment into its own delivery fleet will also
help keep its prices down in the long run. Amazon has also demonstrated
efficiency by using its New Jersey warehouse to serve both New York and
Philadelphia areas. Cross-utilization of warehouses will continue to keep
Amazon’s prices low. Amazon’s available capital is much higher than that of
Instacart, this will allow them to expand rapidly into new areas and benefit from
further scaling.

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Differentiation Advantages
Specifically for Fresh, Amazon has adopted a predominantly cost-based
strategy to gain competitive advantage in the grocery delivery industry, but
there is one area that Amazon has managed to differentiate comparative to
other industry leaders: through the use and integration of advanced, innovative
technology. Prime was the company’s first step, revolutionizing the speed of
order to delivery and now has integrated streaming services and online library
services for Kindle owners. Amazon has combined Fresh with Prime, as well as
other technologies including Echo and Dash.
The Amazon Echo is a voice command device that has functions such as
voice controlled lists, alarms, music, news, radio, and more. The small and
simple device packs a mighty amount of detailed functions that are useful to
almost anyone. Targeted towards families, the device is perfect to have around
the house. The device is by invitation only, as are many of Amazon’s newer
technologies. This allows the company to test the technology while
simultaneously creating an air of exclusivity and scarcity to drive demand6.
Amazon Dash is a device exclusive to Fresh made to help customers
replenish their favorite products before they run out. The button may be used
specifically for an item, such as tide laundry detergent: customers stick the
button to the wall of their laundry room and press it when they are running low
on detergent. They will then receive an alert directly to their smartphone
through the Amazon Prime app, letting them know an order has been placed.
The device is meant to stop the ‘ran-out-of-it’ moment for customers and
further ease the purchasing process. The button is free, and exclusive to
Amazon Prime members by invitation only7. Amazon is also working with
innovators at brands like Whirlpool, Brita, and Brother to develop brand name
products that integrate the dash replenishment system (DRS) directly into
products8. The Dash device looks to be the size and shape of a remote and is
used to order groceries to be delivered at home through voice command
technology. This gadget is again invitation only, no prices listed. Amazon is
sticking with its secretive approach to launch its smart accessories. These
‘smart home’ technologies are differentiating Fresh from its competitors, and
integrate its customer-centric and technology-based core competencies into its
infrastructure to ensure a sustainable competitive advantage.

                                                                                                               
6
"Amazon Echo." Explore Amazon Echo. Amazon. Web. 3 May 2015.
7
"Amazon Dash Button." Introducing Amazon Dash Button. Amazon. Web. 3 May 2015.
8
"Amazon Dash Replenishment Service." Amazon.com. Amazon. Web. 3 May 2015.
 

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