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Strategy
 Amazon.com

   Qui Jun
  Geraldine
   Hector
    James
   Joshua
  Hieu Tran
Company background
   Once upon a time...



   1994                  2300%




   1995
Customers

Consumer customers
Business customers
Developer customers
Consumer customers
Business customers
Developer customers
Key information

20,700 staff
$645 million, a staggering 35.5% increase
in net profit over FY2007
32.61% increase in revenu...
External environment
Industry : Online
Retailing Industry
Porter’s Five
    Level of Threat      Low   Moderate   High
Threat of New Entrants            √
 Bargaining Power of
    ...
Threat of New Entrants


  Moderate
  Threat of New Entrants depends on the
  type and scale of new entrants
Threat of New Entrants
                                                Ability to                          Ability to
    ...
Bargaining Power of
     Suppliers
Low to Moderate
Standardized goods
  Low, many suppliers
Specialized goods
  Moderate, ...
Bargaining Power of Buyers
  Low
  End consumers : mainly individuals
  No threat of backward integration
  Switching cost...
Threat of substitutes

 Moderate
 Mainly the brick and mortar equivalent of
 online retailers 	

   Eg: Borders vs Amazon
...
Intensity of Rivalry
Amongst Competitors
 Moderate
 Industry is largely fragmented
 Factors that increase rivalry
   Price...
Competitive Environment
Competitive Environment
  2 main competitors
    Barnes & Noble
       Book retailer
       Relatively narrow product rang...
Barnes and Noble
Type of competitor : Indirect
   Low Market Commonality
      Lack of international presence
      Narrow...
Barnes and Noble
Intensity of rivalry : High

    BN’s target market is
    Amazon’s most important
    target segment

Co...
Barnes and Noble
Intensity of rivalry : High

    BN’s target market is
    Amazon’s most important
    target segment

Co...
eBay
Type of competitor : Direct
   High Market Commonality
      International presence
      Wide range of products
    ...
eBay
Intensity of Rivalry : High
Competitive edge
  Strong branding and market positioning
     88 million active users, 1...
Internal environment
Core competencies

Customer-centric
Innovative; tech-centric
Distributive efficiency + inventory
management
Strong branding
Customer-centric
    business




        Source: The American Customer Satisfaction Index
Customer-centric
    business
                  Lean operational
                     structure
                    High B...
Customer-centric
    business
                           Lean operational
                              structure
        ...
Customer-centric
    business
                           Lean operational
                              structure
        ...
Customer-centric
    business
                           Lean operational
                              structure
        ...
Innovation & Technology
  Spent more on technology than on
  warehousing or marketing
  Hiring of engineers and programmer...
Distributive efficiency;
inventory management
 25 fulfillment centers worldwide which
 span some 12 million square feet
  Bo...
The Amazon Brand
Most visited e-commerce website in the US, and one of the
top two or three in the UK, France, Germany and...
Business Strategy
Business Strategy

Competitive advantage

  Cost

Competitive scope

  Broad target
From the Annual Report
Our pricing objective is to earn customer trust, not to optimize
short-term profit dollars. We take ...
Cost Leadership
              Low costs allow Amazon
               to price products as the
Low costs       cost leader. ...
Low Costs
Cost leadership: continuously reduce costs of value chain
activities
   Buying
      Better terms with suppliers...
Low Prices

Low costs enable Amazon to offer lowest
prices online
  Free shipping
  Loss leader products
Low Prices: Free Shipping
Low Prices: Case study


      Under the Dome
      Amazon makes a
        loss on each
         copy of the
       above ...
High Volume
Low costs and even lower prices:
profits generated with long term
perspective and high volume
Reach, richness a...
Reach
                      Alexa.com Ranking

      Amazon                 25

  Barnes and Noble           827

        ...
Richness



       Highly personalized
     recommendations and
     relevant shopping info
         make for a rich
     ...
Affiliation




If it’s bad, they tell you too
Easy to buy stuff

      One Click in action (choose one):
         You Found Me by The Fray
         Get On Your Boots by...
Selling more items




Unlimited
  shelf
 space
Cost leadership in
relationship to five forces
  Rivalry:                             Threat of new entrants is low
      R...
Recommendation


Streamline operations, improve margins
Margins and Inventory
                                Return on
           Operating Inventory
Retailer                   ...
Declining Margins
  7%


5.25%


 3.5%


1.75%


  0%
    2004   2005   2006   2007    2008   2009

Amazon      Downward T...
Address low margins
                                      5% 4%

                                13%
 Low margins
   Cut c...
Corporate strategy
Corporate Strategy
Diverse product range…




                    …but focused corporate strategy
Is buying a watch online much
 different from buying a DVD?
Corporate Strategy
Diverse product range…




                    …but focused corporate strategy
Pursuit of new
opportunities
Recommendation: Streamline
   Peripheral Businesses
  Focus on businesses that either indirectly or directly affect
  reve...
International Strategy
Amazon is currently
present in seven countries
  Amazon.com
  Amazon.ca
  Amazon.cn
  Amazon.co.jp
  Amazon.co.uk
  Amazon...
Amazon is currently
present in seven countries
   Amazon.fr
  French limits
     on price
  discounts for
      books


  ...
Recommendation
Enhance the existing global strategy
In 2008 Amazon exported products to
over 200 countries
Focus should be...
Conclusion
3 areas of improvement:
Business level strategy: streamline
operations, improve margins
Corporate level strateg...
Competition is heating up!
Competition is heating up!
Competition is heating up!
Competition is heating up!
“If there is going to be a ‘Wal-Mart of the
Web,’ it is going to be Walmart.com…Our
goal is to be the biggest and most vis...
Q&A
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Strategy Seminar—Amazon.com

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Strategy Seminar—Amazon.com

  1. 1. Strategy Amazon.com Qui Jun Geraldine Hector James Joshua Hieu Tran
  2. 2. Company background Once upon a time... 1994 2300% 1995
  3. 3. Customers Consumer customers Business customers Developer customers
  4. 4. Consumer customers
  5. 5. Business customers
  6. 6. Developer customers
  7. 7. Key information 20,700 staff $645 million, a staggering 35.5% increase in net profit over FY2007 32.61% increase in revenue over FY2007 for international markets
  8. 8. External environment
  9. 9. Industry : Online Retailing Industry
  10. 10. Porter’s Five Level of Threat Low Moderate High Threat of New Entrants √ Bargaining Power of √ √ Suppliers Bargaining Power of √ Buyers Threat of Substitutes √ Intensity of Rivalry √ Amongst Competitors
  11. 11. Threat of New Entrants Moderate Threat of New Entrants depends on the type and scale of new entrants
  12. 12. Threat of New Entrants Ability to Ability to Type of Scale of Threat of New Ability to handle overcome compete against Entrance Entrance Entrants retaliation barriers of entry strong brands New company Large Medium √ √ × launching a new business Small Low × √ × Existing company Large High √ √ √ expanding sales into the e- commerce Small Medium × √ √ space
  13. 13. Bargaining Power of Suppliers Low to Moderate Standardized goods Low, many suppliers Specialized goods Moderate, few suppliers Supplier industry tend to be more concentrated than online retail industry Low threat of forward integration
  14. 14. Bargaining Power of Buyers Low End consumers : mainly individuals No threat of backward integration Switching costs Depends on location and type of products purchased Large factor increasing bargaining power Security of online transactions
  15. 15. Threat of substitutes Moderate Mainly the brick and mortar equivalent of online retailers Eg: Borders vs Amazon Depends on location and variety
  16. 16. Intensity of Rivalry Amongst Competitors Moderate Industry is largely fragmented Factors that increase rivalry Price comparison websites and enhanced features of search engines Rapid increase of industry growth Factors that decrease rivalry Low fixed costs Low exit barriers
  17. 17. Competitive Environment
  18. 18. Competitive Environment 2 main competitors Barnes & Noble Book retailer Relatively narrow product range : books, gifts, entertainment eBay Online platform that allows for market exchanges through its market spaces Broader product range: almost any item that can be shipped across borders
  19. 19. Barnes and Noble Type of competitor : Indirect Low Market Commonality Lack of international presence Narrower product range 20000 Moderate level of Resource Similarity 15000 Similar resources → warehousing 10000 and distribution 5000 Dissimilar resources → financial resources 0 Revenue BN’s revenue: USD 5,121 m BN Amazon’s revenue: USD 19,166 m Amazon
  20. 20. Barnes and Noble Intensity of rivalry : High BN’s target market is Amazon’s most important target segment Competitive edge Branding from brick and mortar stores Concentration of resources into one business area Example : BN’s nook
  21. 21. Barnes and Noble Intensity of rivalry : High BN’s target market is Amazon’s most important target segment Competitive edge Branding from brick and mortar stores Concentration of resources into one business area Example : BN’s nook
  22. 22. eBay Type of competitor : Direct High Market Commonality International presence Wide range of products 20000 Low level of Resource Similarity 15000 Dissimilar resources 10000 Does not have warehousing and distribution facilities 5000 Financial resources 0 Revenue eBay’s revenue: USD 8,541m ebay Amazon’s revenue: USD 19,166m Amazon
  23. 23. eBay Intensity of Rivalry : High Competitive edge Strong branding and market positioning 88 million active users, 150 million active listings Growing customer base Due to effective integration of different business segments Example: Amazon’s attack of eBay’s source of biggest revenue growth -- PayPal
  24. 24. Internal environment
  25. 25. Core competencies Customer-centric Innovative; tech-centric Distributive efficiency + inventory management Strong branding
  26. 26. Customer-centric business Source: The American Customer Satisfaction Index
  27. 27. Customer-centric business Lean operational structure High BP with Low prices suppliers Technology & accuracy “1-Click® Shopping” Convenience Package tracking Ordinary brick-and- mortar bookstores (200,000 titles) vs Variety Amazon (3.1 million titles) Millions of products
  28. 28. Customer-centric business Lean operational structure High BP with Low prices suppliers Technology & accuracy “1-Click® Shopping” Convenience Package tracking Ordinary brick-and- mortar bookstores (200,000 titles) vs Variety Amazon (3.1 million titles) Millions of products
  29. 29. Customer-centric business Lean operational structure High BP with Low prices suppliers Technology & accuracy “1-Click® Shopping” Convenience Package tracking Ordinary brick-and- mortar bookstores (200,000 titles) vs Variety Amazon (3.1 million titles) Millions of products
  30. 30. Customer-centric business Lean operational structure High BP with Low prices suppliers Technology & accuracy “1-Click® Shopping” Convenience Package tracking Ordinary brick-and- mortar bookstores (200,000 titles) vs Variety Amazon (3.1 million titles) Millions of products
  31. 31. Innovation & Technology Spent more on technology than on warehousing or marketing Hiring of engineers and programmers etc. were up 52% in the 2006 to US$485 million Access for external Web site developers Proprietary rights and protection
  32. 32. Distributive efficiency; inventory management 25 fulfillment centers worldwide which span some 12 million square feet Borders 2 inventory turns a year at 400 outlets Amazon 12 inventory turns a year with only 25 fulfillment centers
  33. 33. The Amazon Brand Most visited e-commerce website in the US, and one of the top two or three in the UK, France, Germany and Japan Rare, non-substitutable and costly to imitate High switching costs Repeat clientele ≈66% Marketing Word-of-mouth Amazon Affiliates Program Personalized advertising
  34. 34. Business Strategy
  35. 35. Business Strategy Competitive advantage Cost Competitive scope Broad target
  36. 36. From the Annual Report Our pricing objective is to earn customer trust, not to optimize short-term profit dollars. We take it as an article of faith that pricing in this manner is the best way to grow our aggregate profit dollars over the long term. We may make less per item, but by consistently earning trust we will sell many more items. Therefore, we offer low prices across our entire product range. For the same reason, we continue to invest in our free shipping programs, including Amazon Prime. Customers are well-informed and smart, and they evaluate the total cost, including delivery charges, when making their purchasing decisions. In the last 12 months, customers worldwide have saved more than $800 million by taking advantage of our free shipping offers.
  37. 37. Cost Leadership Low costs allow Amazon to price products as the Low costs cost leader. This allows Low prices them to gain higher market share in the long High volume run and achieve high sales volumes.
  38. 38. Low Costs Cost leadership: continuously reduce costs of value chain activities Buying Better terms with suppliers Selling Technology Economies of scale with website expansion Distribution and supply chain Improving operating efficiencies Negative working capital
  39. 39. Low Prices Low costs enable Amazon to offer lowest prices online Free shipping Loss leader products
  40. 40. Low Prices: Free Shipping
  41. 41. Low Prices: Case study Under the Dome Amazon makes a loss on each copy of the above they sell
  42. 42. High Volume Low costs and even lower prices: profits generated with long term perspective and high volume Reach, richness and affliation Easy to buy stuff Unlimited shelf space
  43. 43. Reach Alexa.com Ranking Amazon 25 Barnes and Noble 827 eBay 23 Google 1 Amazon.com: One of the most visited sites
  44. 44. Richness Highly personalized recommendations and relevant shopping info make for a rich customer experience
  45. 45. Affiliation If it’s bad, they tell you too
  46. 46. Easy to buy stuff One Click in action (choose one): You Found Me by The Fray Get On Your Boots by U2 Relax Max [with Naturally 7] by Michael Bublé Guiding Light by Muse
  47. 47. Selling more items Unlimited shelf space
  48. 48. Cost leadership in relationship to five forces Rivalry: Threat of new entrants is low Rivals follow the lead of the Significant fixed costs market leader because they cannot retaliate in price wars Scale Efficiency and cost Buyers have low bargaining reduction power: Low prices actually build Substitutes: customer loyalty With continuous reductions Low power of suppliers: in costs, customers find it less costly to shop online Amazon can absorb price than at brick and mortar increases as cost leader shops Suppliers are forced to hold down prices, especially in the long run
  49. 49. Recommendation Streamline operations, improve margins
  50. 50. Margins and Inventory Return on Operating Inventory Retailer Inventory Margin Turns Investment Amazon 4.39% 12x 52.68% Walmart 5.8% 8.8x 51.04% Improve margins or improve turnover
  51. 51. Declining Margins 7% 5.25% 3.5% 1.75% 0% 2004 2005 2006 2007 2008 2009 Amazon Downward Trend BN Walmart
  52. 52. Address low margins 5% 4% 13% Low margins Cut costs Pricing Strategy 78% Cost of Revenue, Total Selling/General/Administrative Expense Research & Development Operating Income
  53. 53. Corporate strategy
  54. 54. Corporate Strategy Diverse product range… …but focused corporate strategy
  55. 55. Is buying a watch online much different from buying a DVD?
  56. 56. Corporate Strategy Diverse product range… …but focused corporate strategy
  57. 57. Pursuit of new opportunities
  58. 58. Recommendation: Streamline Peripheral Businesses Focus on businesses that either indirectly or directly affect revenue stream Indirectly impacts revenue Drive traffic to Amazon’s main webpage Eg: IMDb Gain new competencies in other related areas to its business Eg: Alexa.com Directly affects revenue Introduction of e-book reader Kindle
  59. 59. International Strategy
  60. 60. Amazon is currently present in seven countries Amazon.com Amazon.ca Amazon.cn Amazon.co.jp Amazon.co.uk Amazon.de Amazon.fr
  61. 61. Amazon is currently present in seven countries Amazon.fr French limits on price discounts for books Mademoiselle, no free shipping for you if Amazon loses lawsuit (but you still have your baguettes)
  62. 62. Recommendation Enhance the existing global strategy In 2008 Amazon exported products to over 200 countries Focus should be on larger countries Amazon has transferable capabilities, such as reputation and distribution chain knowledge
  63. 63. Conclusion 3 areas of improvement: Business level strategy: streamline operations, improve margins Corporate level strategy: caution against over-diversification International strategy: consider local context
  64. 64. Competition is heating up!
  65. 65. Competition is heating up!
  66. 66. Competition is heating up!
  67. 67. Competition is heating up!
  68. 68. “If there is going to be a ‘Wal-Mart of the Web,’ it is going to be Walmart.com…Our goal is to be the biggest and most visited retail Web site.” -- Walmart.com CEO, Raul Vazquez
  69. 69. Q&A

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