Strategic Management

Amazon Strategic Management 1
AMAZON STRATEGIC MANAGEMENT
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Summary
Many major retailers, as well as consumer manufacturers, are going global to tap into the
considerable share of the fast-growing online retail market. Founded in Seattle, Washington
on July 4, 1994, Amazon.com established an online retail platform that understands consumer
expectations and needs. Jeff Bezos, Amazon’s CEO, recognised the need to deliver more
advanced multichannel capabilities that the traditional forms of retail industries failed to
provide. Amazon thus thrives as a giant corporation, capable of delivering items at affordable
prices in the least possible time. Despite Amazon’s market position, the company is
confronted with intense competition, operational complexity, and seasonality issues. The
objective of this analysis is to determine Amazon.com Inc.’s strategic management. This
paper will accomplish this by performing strategic analysis, carefully analysing its enterprise
model as well as the aspects of the e-commerce and online retail market and provide strategic
recommendations on how to address these challenges.

Table of Contents
Summary .................................................................................................................................... 2
Table of Contents ....................................................................................................................... 3
Introduction ................................................................................................................................ 5
Role of Amazon.com, Inc. ..................................................................................................... 5
Market Share .......................................................................................................................... 5
Key Categories ....................................................................................................................... 6
Organisational Structure ......................................................................................................... 6
Amazon Mission and Vision Statement ................................................................................. 7
M&A Synergies...................................................................................................................... 8
Organisational Context .............................................................................................................. 9
Online Retail .......................................................................................................................... 9
Target Client Base ................................................................................................................ 10
Subscription Plans as Value-Added Proposition .............................................................. 11
Macroeconomic Analysis......................................................................................................... 11
Porter’s Five Forces ............................................................................................................. 11
Competitive Rivalry (Strong Force) ................................................................................. 12
Buyers Bargaining Power (Strong Force) ........................................................................ 13
Suppliers Bargaining Power (Moderate Force) ................................................................ 15
Threat of Substitutes (Strong Force) ................................................................................ 15
Threat of New Entrants (Weak Force) ............................................................................. 16
Recommendations ............................................................................................................ 17
Value Chain Analysis ........................................................................................................... 17
Logistics............................................................................................................................ 17
Marketing ............................................................................................................................. 18
Technology ........................................................................................................................... 18
Issues and Impact on Value Chain ........................................................................................... 19
Core Competencies and Capabilities ....................................................................................... 20
Price...................................................................................................................................... 20
Use of Third-Party vendors .................................................................................................. 20
User Experience ................................................................................................................... 21
Strategic Challenges................................................................................................................. 21
Competitive Threats ............................................................................................................. 21
Operating Complexity .......................................................................................................... 22
Seasonality Issues ................................................................................................................. 23
Recommendations .................................................................................................................... 23
References ................................................................................................................................ 26
Introduction
Industry experts often characterise Amazon.com, Inc. as one of the leading customer-
centric corporations (Gregg and Groysberg, 2019). The company’s mission focuses on
making the customer's lives easier. Amazon has spread into multiple types of technology and
commerce where it provides products at low-cost and supplies the goods at affordable rates.
This essay provides a strategic analysis of Amazon using various lenses, concepts, tools, and
theories, including microeconomic and macroeconomic analysis ( Value Chain Analysis and
Porter’s Five Forces); these tools provide the framework for evaluating Amazon’s strategic
position in a highly competitive industry. Based on the findings of the assesment tools, this
essay will highlight the strategic challenges and address these challenges by outlining
strategic options on how Amazon can increase its profit margin in the growing online retail
business.
Role of Amazon.com, Inc.
Amazon is not the biggest organisation in the US; by market cap, the company tails
Apple. Measured by the total employee count, Wal-Mart beats Amazon, and by earnings
growth, Amazon ranks eighth on the fortune 500 (DePillis, 2018). However, measured by
significance to contemporary life and the ability to shape the US economy, Amazon plays a
significant role. Part of the organisation’s outstanding influence stems from its business
strategy with a focus on consumer experience. Amazon has grown organically from an online
bookseller into an eCommerce icon hat plays in multiple sectors.
Market Share
Recent data indicates that Amazon’s market share of the US eCommerce retail market
hit a 37% mark, and is projected to increase considerably by 2021 (Clement, 2019). One of
the corporation’s business-level strategy to increase consumer spending is Amazon Prime, a
subscription membership that guarantees free and speedy shipping options as well as
streaming video and music. As of December 2018, 62% of Amazon’s customers had
subscribed to premium membership; this is relevant to the firm’s success, as Prime users shop
more than non-Prime members on the Amazon platform, thereby adding more revenue to
Amazon.
Figure 1: Amazon.com projected market share, Source: (Clement, 2019)
Key Categories
Amazon began by selling books. Today, the company is a titan of media, data storage,
hardware, payments, logistics, and eCommerce. Amazon is involved in the business
electronic devices, including a digital assistant that many customers depend on to conduct
daily tasks (Alexa), a home security system (Ring), and an electronic reader (Kindle).
Amazon servers host a third the data stored in the cloud globally. Moreover, the company
acquired Whole Foods hence becoming a brick-and-mortar retailer that it has transformed
into cashier-less convenience stores (Gershgorn et al., 2017).
Organisational Structure
The organisational structure of Amazon is hierarchical in nature. The senior
management team comprises of two Chief Executive Officers (CEOs), three Senior Vice
Presidents, and a Worldwide Controller. These executive managers control core features of
the business operations reporting to Bezos, the company CEO. The organisation is divided
into seven segments, as shown in the diagram below.
Figure 2: Amazon.com Organisational Structure, Source: (Amazon 2017 Annual Report,
2017)
Amazon Mission and Vision Statement
Amazon.com, Inc’s vision and mission statements define the corporation’s status as a
giant online retailer in the globe. In theory, organisational vision statement guides company
direction toward the desired prospect of the business (Free and Miles, 2014). The mission
statement, on the other hand, describes business goals and provides organisational direction
toward strategic management of the firm. Amazon’s mission statement is “We strive to offer
our customers the lowest possible prices, the best available selection, and the utmost
convenience” (Gregory, 2019). The mission guarantees attractive online retail services to
meet the demands of end-users. Amazon concentrates on convenience, selection, and price.
Amazon’s mission statement focuses on the superior and effective service offering. The
organisation emphasises on consumer's convenience in having access to the most suitable
items in the online retail market.

In relation, Amazon’s vision statement is “to be Earth’s most customer-centric
company, where customers can find and discover anything they might want to buy online”
(Amazon, 2019). The vision statement stresses the organisation’s fundamental objective of
leading online retail industry around the globe. The fulfilment of these corporate statements
fosters further improvement of online retail business for continued success in the global
market.
Amazon’s corporate vision and mission statements are important in designing
strategies to enhance the firm’s competitive position against its rival corporation such as Wal-
Mart, Apple, Microsoft, and Google. Specifically, Wal-Mart creates a strong competitive
force, as evaluated in Porter’s F5 analysis within the literature. Amazon’s corporate mission
and vision statements also have a significant influence on the activities of its mergers and
acquisitions such as Whole Foods. Given the wide range of its products, that include
computer hardware and software, cloud computing services, and online retail services,
Amazon aligns its mission statement with its vision to integrate its diverse business
operations.
M&A Synergies
A synergy arises in Mergers and Acquisitions (M&A)s when the combined values of
the two entities are greater than the pre-merger values of both companies combined. Amazon
has acquired over 76 firms, the top eight being Whole Foods (valued at $13.7 billion in
2017), Ring ($1.2 Billion in 2018), Zappos ($1.2 billion in 2018), PillPack ($1billion in
2018), Twitch interactive (970 million in 2014), Kiva Systems ($775M in 2012), Souq.com
($580million in 2017), and Quidsi ($500 million in 2011) (Wolff-Mann, 2017). Amazon
acquired these firms to get a foothold on their respective business and compete with rival
firms in the retail market. For example, Whole Food has a reputation for quality as well as
massive infrastructure for food logistics; this creates synergy for Amazon because of the
benefits whole food provide.
Organisational Context
The specific organisational context discussed in this report is Amazon’s strategic
position in the online retail industry. There has been a significant shift over the years from
traditional retail to online retail, especially with the increased access to internet services. This
section of the report presents a current scenario of eCommerce industry that is the core of
Amazon’s business that will serve the purpose of analysing the company’s internal and
external environment.
Online Retail
US Commerce department indicate that consumers spent over $517.36 billion online
with US retail traders in 2018, up 15 per cent from 44.88 billion spent in 2017. eCommerce
market a growing share in the digital retail industry in 2018, taking a14.3 per cent share of
the overall sales in 2017, up from 12.9 per cent in 2017, and 11.6 per cent in 2016 (as shown
in figure 1). More significant is that online retail represented 51.9% (that is more than half) of
all retail sales revenue. The figures represent the largest share of growth for transactions
conducted through eCommerce platforms since 2008, when online retail accounted for 63.8%
of overall sales growth (Ali, 2019).
Amazon is the leading US online retailer and continues to expand its stronghold in the
US retail industry. Ali (2019) estimates that the total transaction value from US customers to
Amazon was $206.82 billion in sales in 2018, a 16.3 per cent increase from 2017. The
implication is that Amazon alone accounts for 40 per cent of US online retail, and the
company accounted for 43.3% of online retail gains in the US in 2017. The company’s
dominance in online retail is partly owed to its marketplace, that enables the retailer to sell
millions of stock-keeping unit (SKU). Online retailers use SKUs to track inventory levels to
determine the products that need reordering. By adding SKUs to every product variation,
these online retailers can easily track the number of available products and create threshold
limits to enable them to know when new purchase orders must be made.
Figure 3: US Online Retail Penetration, Source: (Ali, 2019)
Target Client Base
Statista (2018) provides information about the worldwide number of active Amazon
user accounts as of Q1 of 2016, where Amazon had 310 million active users. The company is
among the popular eCommerce business globally, providing customers with more than world
wide shopping experience and also offer several value-added services. For example, there are
many services associated with Amazon Prime membership that makes many US users
participate in the yearly subscription of the service. Many Amazon Prime subscribers admit
that the free two-day shipping as the central attraction. Other customers also value online
services, for example, unlimited instant video and audio streaming across multiple platforms,
along with exclusive discounts and promotions. These prime members are especially active
Amazon consumers, recording a higher spending average when compared to their non-prime
user counterparts.
Subscription Plans as Value-Added Proposition
Amazon provides value that aims at prospects such as students and mothers with its
Amazon Student and Amazon Mom. The company offers value to these specialised groups
with deals and discounts for students, and the mothers are offered discounts on family
households and baby products coupled with 2-day free shipping on more than 100 million
goods, unconstrained streaming of television shows, movie, and music for prime members.
The prime monthly subscription is currently $12.99, and student subscription is $6.49 per
month (Su, 2018). Many products that Amazon sells are not only cheaper compared to
traditional retailers but are also delivered to the customer’s doorstep, in two days or in some
cases, on the same day. This eliminates waiting time at the register and implies fewer trips to
the store, and when the digital services (video, music, and photos) are added, it becomes
customer-centric.
Macroeconomic Analysis
Porter’s Five Forces
Amazon continues to lead in the online retail market due to certain strategic issues,
such as the ones described in this Porter’s Five Forces model. Michael Porter designed the
Five Forces framework as an instrument for analysing the external environment of business
organisations. Concerning Amazon, certain external factors influence the conditions of the
online retail industry ecosystem, with a focus on eCommerce activities. Nonetheless, other
markets are also considered, as the corporation has operations in online services such as
cloud computing, distribution of digital content, and consumer electronics. Amazon stands
out as the most iconic player in the digital retail industry. The firm must, therefore constantly
examine the external dynamics in the eCommerce market to sustain its current industry
position both in short and the long term by using the tools such as Porter’s Five Forces
analysis model. The forces of major opponents such as Wal-mart, Microsoft, Google, and
Apple can be effectively managed through strategic design that contributes to the major
forces on Amazon’s online retail business.
Amazon stands out as the leading player in the eCommerce business sector. However,
identified external aspects in this Porter’s Five Forces (F5) evaluation identify a possible
reduction of overall organisational performance as well as market share, especially due to
strong rivalry involving large corporations in the retail industry. Amazon’s intensive growth
strategies and generic competitive strategies must be adjusted to include the participation of
more consumers and firms around the globe. The Seattle icon competes against multiple
firms, including large retail multinational corporations such as Wal-Mart and also smaller
online retail stores. The international scope of the online retail industry also leaves Amazon
vulnerable to a wide range of external threats. Therefore, Amazon must adopt necessary
strategies that will help it stay on the lead amid variations in the conditions of the digital
retail market ecosystem. Based on Porter’s Five Forces Analysis model, the following are the
forces of the external factors influencing Amazon’s performance:
1. Threats of new entrants or new entrants (weak force)
2. Threats of substitution or substitutes (strong force)
3. Suppliers’ bargaining power (moderate force)
4. Buyers’ bargaining power (strong force)
Competitive Rivalry (Strong Force)
Amazon competes against large multinational corporations. This aspect of Porter’s F5
analysis tool addresses the impacts of the organisation relative to each other’s businesses.
With regards to Amazon, the external factors listed below largely contribute to the elevated
competition intensity in the digital retail industry ecosystem; these are low switching costs,
increased availability of substitutes, As well as increased aggressiveness of companies, all of

which have a high intensity. One of the key characteristics of retail firms is high levels of
aggressiveness, and they exert intense competitive forces against one another. As an example,
the rivalry between Walmart and Amazon has intensified over the years, and Wal-Mart
appears to be gaining traction. Wal-Mart is the world’s largest retailer, and the company’s
2018 Q2 results indicated the firms' shares increase by 10% (Cheng, 2018). Visits to
Walmart’s brick-and-mortar location surged by 2.2%, and average consumer spending per
transaction also increased.
Moreover, increased demand for the company’s fresh-food segments pushed its most
convenient grocery purchases in 9 years. Generally, the key to Wal-Mart’s sales was an
unprecedented 40% surge in online sales. While eCommerce was responsible to merely 1%
point to the 4.5 per cent total US similar-store earnings growth, Walmart’s earning, revenue
had a far broader ripple effect (Cheng, 2018). Walmart's omnichannel programs are
contributing to higher earnings growth and providing consumers with new levels of shopping
convenience, similar to Amazon. Also, as with Amazon’s strategy, Wal-Mart is continuously
offering digital capabilities to its stores to provide a seamless experience for consumers.
While Amazon is considered an icon in the online retail business, Wal-Mart is showing that
its sizeable fleet of stores (that is within ten miles of 90 per cent of the US population, is a
powerful competitive weapon. Comparatively, Wal-Mart had almost 4800 stores in the US by
Q2 2008, including 3600 supercenter stores while Amazon's Whole Food Stores fell to below
500 (Cheng, 2018). Given that Wal-Mart Amazon’s biggest threat, this report chose the
former in Porter’s Five Force analysis. Competition against Wal-Mart must, therefore, be a
priority to guarantee the firm’s continued competence in the online retail industry.
Buyers Bargaining Power (Strong Force)
As previously discussed, Amazon’s mission and vision statement indicate the firm's
customer-centric strategy to an online retail business. This aspect of Porter’s F5 analysis

framework explores the impact of clients on companies and the industry ecosystem. In the
case of Amazon, this report has identified the following external features that are responsible
for the high intensity of the buyers bargaining strength: high availability of substitutes, low
switching costs, and high quality of information. All these factors have a strong force.
According to Mourdoukotas (2019), in the age of digital information, customers have
easy access to relevant details about the services of digital retailers as well as the services
these firms offer. This particular external factor affects Amazon based on the ability for
consumers to find other options to the organisation's eCommerce service. Concerning low
switching costs, the online retail industry has many players and therefore making it easier for
purchases to shift from one corporation to the other. A Wal-mart online customer enjoys
lower prices, not having to pay a subscription fee and also provides fast shipping in many
orders (Mourdoukotas, 2019). Wal-mart users can also order delivery items for a better deal,
and usually, get their goods delivered on the same day. For Groceries, Wal-Marts delivery is
one of the most affordable options available. Therefore, buyers can easily switch from
Amazon to Wal-Mart without at low costs.
Moreover, the high number of substitutes in the online retail industry adds to the
buyers' leverage to easily shift loyalty from one company to the other. As an illustration,
instead of buying an item on Amazon’s website, a buyer can easily walk into Walmart stores,
that are located at strategic points across the US. The external factor of this aspect, therefore,
shows that Amazon that when developing its strategic management, Amazon should take into
account the strong bargaining force of consumers as a significant factor in tackling strategic
business issues in the eCommerce industry.

Suppliers Bargaining Power (Moderate Force)
Amazon needs materials to run their online retail operations, and the suppliers control
the availability of these products. The impact of the suppliers in the eCommerce business
ecosystem is assessed in this aspect of Porter’s F5 analysis framework. The suppliers have a
moderate influence of Amazon’s online retail business because of the following external
factors: the size of supplier and forward integration (these two exert a moderate force), and a
small population of suppliers that exert a strong force on Amazon.
When the number of suppliers is small, they have the power to levy a powerful force
on organisations. For instance, price fluctuations of equipment from a small size of large
suppliers has a considerable impact on Amazon’s online, operational expenses. Nonetheless,
the moderate forward integration restricts the definite impact of suppliers on Amazon’s
business. A moderate forward integration implies that the suppliers’ control on the sale of
their merchandise to giant corporations such as Amazon is limited. Additionally, the
moderate size of many manufactures scales down their influence of Amazon’s eCommerce
operations. As such, this aspect of Porter’s F5 enables is useful because it identifies the
moderate influence of suppliers as a strategic determinant in the eCommerce business
ecosystem.
Threat of Substitutes (Strong Force)
There are many substitutes in the online retail industry environment. This aspect of
Porter’s F5 analysis framework explores how these substitutes impact the online retail
business. With regards to Amazon, this report has identified these factors to reinforce the
high intensity of the threat of substitution: low cost of substitutes, increased availability of
substitutes, as well as, low switching costs. All the three factors mentioned above exert a
strong force. Amazon frequently battles with a powerful force of substitutes, that threaten its
overall performance. In relation to the low switching costs, buyers can easily opt for other
retail platforms, thereby shifting their money from one firm to other corporations. As an
example, clients can easily choose to purchase products from Wal-mart instead of using
Amazon’s eCommerce website. The increased availability of substitutes, coupled with the
less expensive product offerings expenses, further augment the powerful influence of
substitutes against Amazon in the online retail industry. Therefore, the external aspects of the
threat of new substitutes indicate that Amazon should continually develop strategic options to
stay ahead of the game.
Threat of New Entrants (Weak Force)
New establishments potentially lower the market share of Amazon in the digital retail
industry. The influence of new entrants is discussed in this section of Porter’s F5 framework.
Amazon faces a weak force of the threat of new entrants in the online retail industry due to
the following reasons: increased economies of scale and high brand development cost, both
of which are weak forces, and low switching costs. As previously mentioned, the switching
costs in the eCommerce business is usually high because major actors also offer affordable
pricing and faster delivery options. Small firms use this as an advantage to applying a
powerful force against Amazon. However, owing to the increased cost of brand development,
these small firms lose their edge against the already established Amazon in the online retail
business. For example, a small firm that considers competing against Amazon would require
a substantial amount of capital in terms of billions as well as years of building up the brand
name. Moreover, Amazon enjoys the increased economies of scale that does its digital retail
business over the edge. The new firms would need to achieve the high economies of scale to
reach Amazon’s level. Drawing references from the external factors of this aspect, new
entrants are an insignificant strategic challenge in the performance of Amazon in the
eCommerce industry.
Recommendations
Based on the Porter’s Five Forces, Amazon must deal with the critical forces of
competition, substitutes, and consumers in its strategic management. This report suggests that
Amazon must deal with the powerful force of competitive rivalry by allocating more
resources on the strengths as well as the competitive advantage of the eCommerce industry.
For instance, Amazon can continuously enhance its brand image, that is one of its powerful
weapons. The company can tackle the external features associated with the powerful intensity
of the buyer’s purchasing force by emphasising the quality of service. For example, reduction
of counterfeit products can enhance customer experience and satisfaction in using Amazon’s
online retail platform. The other strategy is for Amazon to address the threat exerted by
substitution by improving its service to attract and retain consumers. For example, Amazon
can progressively and innovatively enhance the usability of its online platform to optimise
consumer experience. These suggestions aim to increase Amazon’s competitive strategy,
along with sustainable success in the eCommerce industry.
Value Chain Analysis
Value chain analysis refers to an analytical model that helps in recognising business
actions which can produce value as well as, competitive edge to the organisation.
Logistics
Considering the consumer-centric strategy of Amazon, a major facet of value creation
for the company is the fulfilment of orders, that is accomplished when the client finally
obtains the ordered item. Order fulfilment process is closely linked to the supply chain and is
maintained by inbound and outbound logistics. Inbound logistics involves cost minimisation
by ordering the items from vendors, and that results in stock optimisation management
processes. Outbound logistics, on the other hand, entails shipping, packing, sorting, and
picking. In the process, the expenses are continuously decreased, employing technological
advancements.
Investment concerning the development of fulfilment space guides Amazon closer to
the needs of the client. The organisation guarantees a speedy order fulfilment utilising its
supply chain associates, that deliver products packed in Amazon wrapping straight to the
consumer. The other advantage is elevated product range, reduction of transport expenses,
and enhancement of product availability in fulfilment. Ample fulfilment space, drop shipping,
and technological developments, enable Amazon to recognise its enormous potential and to
offer a comprehensive portfolio of merchandise ascertaining to the corporation’s image as the
fastest retail 'shipper' on earth.
Marketing
Amazon employs typical types of promotion techniques such as television, internet
banners, and print, and also uses its participatory network to a striking marketing advantage.
As an illustration, Amazon has adopted the pay-per-click promotion on giant search engines
(Yahoo, Bing, and Google). The company also utilises direct email marketing with focused
consumer service. Moreover, Amazon enrolled an associate program in 1996, designed to
enable smaller websites to pump in traffic for Amazon.com. The strategy has largely
contributed to the unparalleled presence of Amazon and has enhanced the website
positioning. Therefore, by creating its network of buyers through these tactics, Amazon has
an added advantage against its competitors in the online retail industry
Technology
Technology stream has a vital function to drive and improve Amazon.com’s business
solutions. Data gathered from various Amazon are teaming up to generate a cohesive
consumer experience. A buyer can click on the Amazon online store to obtain a couple of
products for dinner, request Alexa to search up ingredients of a particular product and the
item suggestion engine can assess that the purchaser should buy a particular type of home
appliance. Rather than oppose each other, several departments share their inventive expertise
to deliver a tailored and cohesive client experience. Moreover, the company sells its Machine
Learning (ML) and AI program through Amazon platforms to prospects, including the NFL
and NASA (Morgan, 2018). By taking exploiting AI breakthroughs and functions in other
parts of the corporation, Amazon provides unique AI strategies to small and large businesses.
Issues and Impact on Value Chain
The first pressing issue is competition. Amazon would find it difficult to compete
with the capital and human resources present Wal-Mart Stores Inc. According to Ron
Johnson, former CEO of JC Pennu Co. Inc., “Wal-Mart is Amazon’s greatest threat” (Aiello,
2017). Wal-Mart may spend more on R&D and technology, logistics, and advertising
compared to Amazon, giving it a strategic disadvantage. As a consequence, Amazon’s
perceived value chain can be reduced, thereby lowering overall sales. The second issue is an
expansion in which Amazon plans on expansion strain on key resources such as logistics and
human resources (Soper and Black, 2018). If the company fails to manage the expansion, it
could tarnish brand equity and adversely affect its operating results. Also, a similar value
chain for the US market might not apply to new markets and technology challenges in new
markets become a daunting task for Amazon to expand.
The third issue is seasonality; Amazon experiences a revenue and sales spike in Q4 of
every year. If the firm is not capable of restocking inventory to meet demand, it could affect
revenues. On the other hand, overstocking can affect profitability. The large numbers of
online traffic during holiday shipping may bring system interruptions and strain the IT
systems. Amazon may also be under strain of human resources in logistics and customer
services personnel at this period of the year. The company also faces regular system
interruptions, which make its websites slow to respond and prevents Amazon from fulfilling
certain orders. As such, the company can experience a reduction in net sales as well as the
reduction in the attractiveness of the firm’s products.
Changes in consumer demand & taste can affect what inventory Amazon needs to
have. Amazon attempts to use business intelligence to predict these, but the uncontrollable
nature of these may lead to inventory problems. Lastly, Amazon outsources its payments
systems to third parties; this subjects the company to regulations and fluctuation in payment
processing fees, which can affect profitability. In effect, Amazon's IT systems get strained
further in that security breaches may result in fines and litigation by banks if sensitive
information is released without authorisation.
Core Competencies and Capabilities
Price
Amazon has mastered the art of providing affordable prices to enhance sales and keep
consumers at the same time. One of the important techniques with the ability to accomplish
this is to reduce logistics overheads. The firm lowers its costs by keeping a small inventory of
its goods. The beneficial economic distribution and as well as management of work capital
enables Amazon to spread on the savings to consumers. In case the top ten vendors had
Amazon’s capabilities to slice these distribution costs, these third-party vendors could save
thousands and millions of dollars; therefore, Amazon's pricing is an integral, outstanding
competency.
Use of Third-Party vendors
Amazon has established a competitive environment for other retailers who place
goods for sale on the company's platform (Sawyer, 2018). This strategy benefits Amazon
publicise its status and provide the least expensive prices owing to the stiff pricing
competition in the environment. Consequently, the vendors serve Amazon’s interests and
enhance client loyalty.

User Experience
Amazon’s large pool of technical know-how on the workings of the database of
ratings and reviews has evolved into a system for a large network of customers (Amazon,
2019). These reviews are vital elements that influence many prospects to use the Amazon
platform to purchase their products. They create a social style to purchasing items on
Amazon and as such, the participatory pool of reviews heighten the digital experience by
building a community, thus dispensing a priceless feeling of belonging to the customer as a
valuable member of the company.
Strategic Challenges
Based on the analysis of both the macro- and micro-environment of Amazon, the
major challenges that the company faces include competitive threats, operational complexity,
and seasonality issues.
Competitive Threats
Amazon faces aggressive competition from giant industry players such as Google,
Apple, and Wal-Mart. According to Aiello (2018), threats from online retail competition,
both in core-eCommerce and cloud services is the leading Amazon’s risk. Although Amazon
is doing well in developing new markets such as Amazon Web Services (AWS) cloud
computing, the industry is confronted with high competitive risks that could dislocate
Amazon’s stock in the short term, especially that three other big establishments in cloud
computing, Google and Microsoft, are fairly comfortable in their market positions. Aiello
(2017) further states that Google could pose a huge threat in cloud computing in terms of
pricing, as the company has the necessary tools to seize Amazon.
Moreover, competition could also hit Amazon in the in its core retail business.
Amazon had a competitive edge over rival traditional retail stores such as Wal-Mart due to its
two-day delivery and low pricing strategy. However, this is not the case now because
WalMart also delivers products to its customers in two days without having to subscribe for a
premium membership. Wal-Mart is, therefore, dramatically outstripping Amazon’s core retail
sale.
Operating Complexity
The most recent quarter shows how Amazon’s position as an online retailing giant
across the globe comes at an immense price. The company has to spend substantial amounts
of money on maintaining its significant growth and also to stay a step ahead of the other
major players in the eCommerce industry. Although these investments appeal to the
customers due to the broadened video libraries, elevated product inventory, and speedy
fulfilment networks, Amazon is confronted with a growing amount of operational
complexity. For the last quarter of 2017, the company’s operating expenses hiked 28% to
37.3 billion (Rubin, 2017). The headcount of workers increased to 42% from 2016 to 382,
400 positions, and shipping costs increased by 36% in 2017. As a consequence, Amazon has
had to scale its IT systems, human resources, and infrastructure thereby exerting a pressure
on the firm’s financial resources, personnel, as well as management.
Figure 4: Amazon Operating Costs, Source: (Trading Economics, 2019)

Seasonality Issues
Amazon faces seasonality challenges due to the massive influx of orders and traffics
mainly during Q4 of as a result of consumers increased shopping behaviour during the end of
the year. These issues also arise during sometimes of the year, especially during specific
holidays. Amazon has been struggling with speciality strain and has unsuccessfully struggled
with demand for inventory to ensure guarantee enough items, potential hikes in shipping
expenses, slow speed and website outages due to increased traffic, along with additional
staffing demands (Sawyer, 2018). The impact of these issues is considerably elevated during
Q4 when Amazon is required, as per its mission statement, to satisfy customer demand and
expectations. Moreover, the failure of Amazon to restock most demanded products during
specific periods of the year has a potential impact of adversely affecting its earnings growth.
Conversely, overstocking might cause write off that can as well lower profitability.
Recommendations
Amazon should focus its resources on addressing the key strategic challenges
discussed in the previous literature to gain a competitive advantage over its rivals in the
market and also to boost its revenues.
Concerning competitive threats, Amazon should continuously shift ahead of its
opponents by staying focused on what it stands for in the minds of the customers. Ries and
Trout (2010) noted that the basic strategy of positioning is not to create a new product but to
manipulate what already exists in mind, to link the connections that are already present.
Amazon has already established itself as a giant in the online retail industry. However, what
consumers strongly associate the company with is reliable logistics. Amazon can deliver
merchandise from one point to the other, and should continuously make grocery delivery and
shopping as pleasant and efficient as possible. The line between traditional retail and
conventional e-tail is fading, and the dominant player will be the one who excels at the
integrations. Amazon should therefore continuously seize and see the opportunities, keep its
lens open wide enough to see consumer issues that other major establishments fo not, and
most importantly, focus on consumer desires.
The other strategic recommendation is that Amazon should cut off its reliance on
FedEx Corp (FDX) or United Parcel Service Inc (UPS) to help solve part of the operational
complexities. Amazon has recently been experiencing issues on scalability, especially in
relation to fulfilment centres. In 2018, the corporation’s fulfilment expenses accrued to $34.0
billion up from just over $1 billion in 2007 (Richter, 2019). Given that Amazon has
announced a one-day delivery promise to its customers, shareholders must demand a
profitable and sustainable shipping service that can accommodate Amazon’s commitment to
its consumers. On this note, Creswell (2018) asserts that neither UPS nor FedEx can offer
such a service. Moreover, the company’s reputation with the two companies has come under
considerable scrutiny in recent months. US president, Donald Trump, said that Amazon costs
UPS taxpayers billions of dollars. In light of these concerns, Amazon should streamline its
fulfilment process, not only internally, but also by doing away with UPS and FedEx.
Amazon can achieve this by creating its private delivery service; this will enable the
firm to retain control over its most essential selling feature, that is, one-day delivery. The
approach could also help Amazon to solve the operational complexities that surround its
service offerings. Contract labour that resembles what Amazon deploys for its one-hour
delivery service could also be adopted in its delivery operations to guarantee flexibility when
the amount of packages varies throughout the year.
Lastly, to solve the seasonality issue, Amazon has to improve on ML and AI
capabilities. In particular, AWS cloud computing can enable Amazon to scale computing
resources upward or downward without much difficulty (Goyal, 2019). The company can use
the technology to allot funds automatically in case of an unprecedented increase in demand

and also scale them down when demand falls. AWS technology could also prove useful for
tasks recurring frequently, assignments that are short term and those that are mission-critical.
References
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Amazon Strategic Management 1

AMAZON STRATEGIC MANAGEMENT

objective of this analysis is to determine Amazon.com Inc.’s strategic management. This

recommendations on how to address these challenges.

Role of Amazon.com, Inc.

bookseller into an eCommerce icon hat plays in multiple sectors.

the corporation’s business-level strategy to increase consumer spending is Amazon Prime, a

Figure 1: Amazon.com projected market share, Source: (Clement, 2019)

hardware, payments, logistics, and eCommerce. Amazon is involved in the business

into cashier-less convenience stores (Gershgorn et al., 2017).

The organisational structure of Amazon is hierarchical in nature. The senior

into seven segments, as shown in the diagram below.

Figure 2: Amazon.com Organisational Structure, Source: (Amazon 2017 Annual Report,

Amazon Mission and Vision Statement

organisation emphasises on consumer's convenience in having access to the most suitable

items in the online retail market.

In relation, Amazon’s vision statement is “to be Earth’s most customer-centric

Amazon’s corporate vision and mission statements are important in designing

benefits whole food provide.

The specific organisational context discussed in this report is Amazon’s strategic

of overall sales growth (Ali, 2019).

Figure 3: US Online Retail Penetration, Source: (Ali, 2019)

Target Client Base

Subscription Plans as Value-Added Proposition

Porter’s Five Forces

forces on Amazon’s online retail business.

reduction of overall organisational performance as well as market share, especially due to

forces of the external factors influencing Amazon’s performance:

1. Threats of new entrants or new entrants (weak force)

2. Threats of substitution or substitutes (strong force)

3. Suppliers’ bargaining power (moderate force)

4. Buyers’ bargaining power (strong force)

Competitive Rivalry (Strong Force)

Amazon competes against large multinational corporations. This aspect of Porter’s F5

increased availability of substitutes, As well as increased aggressiveness of companies, all of

transaction also increased.

convenience, similar to Amazon. Also, as with Amazon’s strategy, Wal-Mart is continuously

Buyers Bargaining Power (Strong Force)

customer-centric strategy to an online retail business. This aspect of Porter’s F5 analysis

According to Mourdoukotas (2019), in the age of digital information, customers have

Amazon to Wal-Mart without at low costs.

business issues in the eCommerce industry.

Suppliers Bargaining Power (Moderate Force)

small population of suppliers that exert a strong force on Amazon.

suppliers has a considerable impact on Amazon’s online, operational expenses. Nonetheless,

their merchandise to giant corporations such as Amazon is limited. Additionally, the

moderate influence of suppliers as a strategic determinant in the eCommerce business

Threat of Substitutes (Strong Force)

stay ahead of the game.

Threat of New Entrants (Weak Force)

entrants are an insignificant strategic challenge in the performance of Amazon in the

consumer experience. These suggestions aim to increase Amazon’s competitive strategy,

along with sustainable success in the eCommerce industry.

Value Chain Analysis

Considering the consumer-centric strategy of Amazon, a major facet of value creation

Investment concerning the development of fulfilment space guides Amazon closer to

offer a comprehensive portfolio of merchandise ascertaining to the corporation’s image as the

fastest retail 'shipper' on earth.

Amazon employs typical types of promotion techniques such as television, internet

consumer service. Moreover, Amazon enrolled an associate program in 1996, designed to

an added advantage against its competitors in the online retail industry

Issues and Impact on Value Chain

compared to Amazon, giving it a strategic disadvantage. As a consequence, Amazon’s