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Amazon’s Marketing Strategy Essay

Abstract

The purpose of this paper is to evaluate the marketing process of online retailer Amazon.com, Inc. Amazon.com provides a number of retail services as well as web and storage services. The corporate strategy framework, as discussed in Cravens & Piercy’s Strategic Marketing text, will be used to examine the background of the company and define its current position. The corporate framework includes the following: (1) corporate vision (2) corporate objectives toward vision (3) resources (4) business composition and (5) business design. The marketing strategy of the company will be reviewed using Cravens & Piercy’s suggested marketing strategy process. To assess the current marketing problems and opportunities, this paper takes a closer look at the company’s current SWOT analysis, provided by GlobalData. In addition, strategic recommendations will be made for the company’s prolonged growth.

Amazon Inc.

A company’s market driven strategy “mandates more effective integration of activities and processes that impact customer value” (Cravens & Piercy, 2009). As well as a consistent market driven strategy, an organization must be creative and innovative in order to compete in the global marketplace. Amazon, Inc. has developed an inventive marketing strategy through the use of the Internet. By becoming pioneers in the e-commerce marketplace, the company has transformed retail. Amazon Inc. should evaluate their corporate and marketing strategies to make use of all available resources. The company has experienced some marketing failures but can still take advantage of existing marketing opportunities. In the 9th Edition of the text Strategic Marketing, Cravens & Piercy write, “corporate strategies are concerned with how the company can achieve its growth objectives in current or new business areas” (Cravens & Piercy, 2009). When building the framework for a competitive corporate strategy, an organization must first decide the corporate vision. During the summer of 1994, Internet usage showed promising growth.

A reported statistic of 2,300% yearly growth encouraged Jeff Bezos, then Senior Vice President for D.E. Shaw & Co., to quit his job and concentrate on a way to gainfully use this information. His long term vision for his company was to revolutionize retail by creating “the earth’s biggest online retail store, where everyone could buy anything and everything” (Kargar, 2003). To achieve this goal, Bezos conducted market research that led him to Seattle and directed him to choose selling books online as his main focus. The company was launched in 1995 and by the first quarter of 1996 reported sales revenues of $110 million. The company soon changed from a virtual bookstore into a virtual marketplace by entering new markets that included music, movies, electronics, toys, apparel, grocery and others. Years later in 2006 Amazon.com had become what some called a model of “the next-generation Internet-based business” (Isckia, 2009).

That same year the company introduced their new endeavor, Elastic Compute Cloud (EC2), that offered cheap computing power over the Internet. Many believed Bezos’ unconventional wisdom took the company further away from its core vision. However, a closer examination of Bezos creative mindset reveals more of the organization’s well developed corporate philosophy and structure. Moving beyond book selling, the launch of EC2 and Simple Storage Service (S3) are examples of achievements towards the corporate vision. Amazon has been able to implement objectives in the areas of product quality improvement and new-product targets. Cravens and Piercy note that “a key strategy issue is matching capabilities to market opportunities” (Cravens & Piercy, 2009). Transforming Amazon.com into more than just a retail operation has given the organization the capability to “compete in different markets, provide significant valued to end user customers, and create barriers to competitor duplication” (Cravens & Piercy. 2009).

With Bezos’ continuous investments in new technological initiatives, investors were concerned about Amazon’s increasing debt and profitability. Kargar reports, “the company had a weak balance sheet [and] massive negative operating cash flow” (Kargar, 2004). Throughout the company’s financial history there have been many monetary losses. According to Robert D. Hoff and Heather Green, in 2002, “the company still carried $2.2 billion in long-term debt” (Business Week, 2002). In International Journal of Cases in Electronic Commerce, Pauline Ratnasingham reports that “Amazon.com shareholders lost 80% of their value in 2000” (Ratnasingham, 2006). Though sales increase rapidly, losses continue to soar as well. Despite the financial failures, in 2006 Bezos’ still believed that his investments would yield big payoffs in later years and that Amazon.com would be a “meaningful business…one day” (Hoff, 2006).

As Amazon.com continued to expand, the company’s strategic business units (SBU) consisted of four key divisions: (1) U.S. Books/Music/DVD/Video (2) U.S. Electronics, Tools, and Kitchen (3) Services and (4) International (Ratnasingham, 2006). This business composition makes it easier to focus on separate specific strategies for each unit. The company’s business model also provides a competitive advantage. Amazon benefits from being able to maintain a virtual store front with distribution centers located in low rent areas. In all, a combination of convenience, speed, reliability, discounted pricing, and a wide selection of merchandise creates a synergistic business design that cannot be easily duplicated. When developing Amazon.com’s corporate structure Bezos clearly understood and defined his business strategy. The organization would now need to design and implement a consistent and integrated marketing strategy.

An important aspect of Amazon.com’s marketing strategy is their customer-centric approach. Amazon offers lower prices, free shipping, and customer service available 24/7. Also, the customer experience is enhanced through personalized recommendations and customized web pages. The organization’s strength in customer service has been effective in increasing customer loyalty, website traffic, and repeat purchases. Amazon.com uses various marketing techniques that include online advertising, email campaigns, and their Associates Program. The Associates Program, which allows outside websites the ability to make products available to Amazon customers, has proven to be very successful. In 2001 over 700,000 associates were registered for the program. This marketing tool allowed Amazon.com the ability to “expand its market beyond its own website and concentrate on its strength of order fulfillment and distribution” (Ratnasingham, 2006).

Another key aspect of Amazon.com’s marketing strategy is their established strategic relationships with various traditional retailers. These alliances enhance the value offerings of customers, give the company a competitive advantage, and increase the market share for all companies involved. Some of Amazon’s partnerships include Toys ‘R’ Us for toys and video games, the Gap for clothing and Drugstore.com for pharmacy items. The company also has third party arrangements with Target Corporation, Borders Group, Expedia, and others. Amazon profits by providing customers with a diverse array of products while their allies are able to use the technology, services, and tools of Amazon.com.

A significant detail of any organization’s marketing strategy is creativity and innovation. In her article for The Learning Organization, Verna Allee suggests that “in order to sustain competitive strength and continue growth Western companies need to build innovation into their cultures and structures as an essential condition for value creation” (Allee & Taug, 2006). In 2008, Amazon.com was listed as number 20 in a list of the world’s 25 most innovative companies (Cravens & Piercy, 2009). The new service offering of the EC2 and S3 digital utilities moves the company into competitive opportunities within the software platform marketplace. Bezos’ innovation strategy for Amazon.com includes these five following rules:

1) Measure everything
2) Keep development teams small
3) Don’t be afraid of weird ideas
4) Open up to outsiders
5) Watch customers, not competitors (Hoff, 2006)

Amazon.com’s technological advances and Bezos’ forward-thinking has led the company to create ground-breaking products, such as the Kindle and also compete with top online digital music provider Apple ITunes. By encouraging continued innovation, Amazon can secure their place as leaders in Internet-based businesses.

Amazon.com is in a position to gain from the various opportunities they have in the e-commerce marketplace. These opportunities include new trends and technological advances. Amazon competes well and has growth in the digital e-book market thanks to their Kindle product. Amazon can continue to invest in technology to sustain profitability. In general, E-commerce is experiencing growth. Amazon.com is in the position to benefit from this rise. The site currently offers payment security, one-click payments, user-friendly features, and other technologies that new web-based businesses will have to compete with. The company also has the opportunity to expand through strategic alliances and acquisitions. For example, GlobalData reports that Amazon.com acquisition of TouchCo earlier this year, “is expected to bring about cost reduction in the company’s business” (GlobalData, 2010).

Overall, Amazon.com employs strong marketing strategies. GlobalData reports that the company’s emphasis on marketing can be seen in their increased marketing costs in 2009, in comparison with 2008 and 2007 (GlobalData, 2010). However, Amazon.com is faced with some marketing problems. Because the company has a seasonal nature, more shoppers during the holiday seasons, the number of customers accessing the website at one time could cause system interruptions. This could contribute to fulfillment issues and a delay in deliveries. Also, Amazon.com faces the threat of traditional retail stores like Wal-Mart or Barnes & Nobles who now have an online component. Amazon.com now has to compete with companies who have greater brand recognition and more customers.

The partnerships the company has made also pose a problem. For example, in 2004 Toys ‘R’ Us bought a case against the company because Toys ‘R’ Us exclusive items were being sold by competitors through Amazon’s website. Also the company suffered increased costs because of their alliance with Drugstore.com. To offset the problems and threats faced by the company, Amazon can benefit from the following strategic recommendations. First, during the off-season Amazon can do aggressive promotional campaigns to include discounts for students and partnerships with university and college professors to be the exclusive vendor for textbooks and suggested reading materials. Also, Amazon’s fulfillment processes should be evaluated to determine what issues are prevalent during the holiday season.

Those issues should be addressed and fulfillment centers should be restructured accordingly. The company should re-evaluate their alliances by doing a cost assessment. By determining which costs are insignificant, expenses can be reduced or eliminated. Through the leadership of Jeff Bezos, Amazon.com continues to be the best and first by thinking outside the box. The company has changed the way consumers shop, the way they read, and the way entrepreneurs run their businesses. Bezos accepts his failures, focuses on what works and continues to support new ideas and hopeful initiatives. An evaluation of their marketing and corporate strategies to assess their failures can allow them the ability to make appropriate use of their opportunities.

References
Cravens, D. W., & Piercy, N. F. (2009). Strategic marketing (9th ed.). New York: McGraw-Hill. Hoff, R.D. (2006). Jeff Bezos’ risky bet.
BusinessWeek, 52-58. Retrieved December 14 from ABI/INFORM Global. Hoff, R.D., & Green, H. (2002). How amazon cleared that hurdle: to earn a profit, it cut costsand started growing again. BusinessWeek, (3768), 60-61 Retrieved December 14 from ABI/INFORM Global. Hoff, R.D., Neuborne E., & Green, H. (1998 December). Amazon.com: the wild world of e-commerce: by pioneering – and damn near perfecting – the art of selling online, amazon is redefining retailing. BusinessWeek (3608), 106 Isckia, T. (2009). Amazon’s evolving ecosystem: a cyber-bookstore and application service provider. Canadian Journal of Administrative Sciences, 26(4), 332-343. Retrieved December 17 from ABI/INFORM Global. Kargar, J. (2004). Amazon.com in 2003. Journal of the International Academy for CaseStudies, 10(1), 33-52. Retrieved December 11, 2010 from ABI/INFORM Global. Ratnasingham, P. (2006). A swot analysis for b2c e-commerce: the case of amazon.com. International Journal of Cases in Electronic Commerce, 2(1), 1-22, Retrieved December11, from ABI/INFORM Global.


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