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Amazon.com, with its visionary mission of being the earth's most customer-centric company, has emerged as a global e-commerce giant. This essay explores how Amazon's relentless pursuit of customer satisfaction is intricately linked to its strategic utilization of information systems. We will delve into Amazon's use of information systems across Porter's value chain, analyze its innovative approaches, and examine its strategic alliances. Additionally, we will explore Amazon's future plans to maintain its competitive edge by extending its technology and logistics solutions to other firms.
Michael Porter's concept of 'Value Chain Analysis' emphasizes that every firm comprises a set of activities designed to create, produce, market, deliver, and support its products or services.
Information technology can significantly enhance a firm's competitive position by strategically integrating technology into these activities (Laudon & Laudon, 2005).
Since its inception in 1995, Amazon has harnessed information technology to manage each stage of its value chain effectively. For inbound logistics, including receiving, storing, and inventory control, Amazon employs sophisticated technology such as Transportation Optimization and Management Systems (TOMS).
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They utilize various applications for order processing, supplier management, and inventory allocation. Amazon's inventory management has become so efficient that they often collect payments from customers before settling payments with suppliers (SEC1, 2007).
Amazon's marketing strategy relies heavily on technology to drive customer traffic, promote awareness, encourage repeat purchases, and strengthen the brand. Personalized web pages and recommendation systems, based on user preferences, enhance their marketing efforts. Their advertising primarily focuses on online channels, including the Associates program, sponsored search, portal advertising, email campaigns, and more.
Customer service is another area where technology adds value to Amazon's offerings.
They pioneered "1-click" express shopping, allowing customers to make purchases with a single click, enhancing the convenience and efficiency of online shopping. Their commitment to superior customer service includes email and telephone support, online tracking, and one-click payment options.
With the advent of e-business, the value chain information flow has evolved to include 'promotional' and 'intelligence gathering' information flows (Ward & Peppard, 2002). Amazon excels in these areas by employing automated email measurement and optimization systems to provide customers with relevant product recommendations. This personalized promotional approach enhances the customer experience while avoiding the pitfalls of spam.
Amazon's technology automatically optimizes content, avoids sending low-performing email campaigns, manages inbox frequency, and maintains a library of automated email programs. This demonstrates their commitment to value addition in the promotional flow of information and their intelligent utilization of data provided by their technology.
E-business offers vast potential for gathering customer preference and attitude information online, bypassing traditional market research methods. Amazon stores customer choices in their information systems, enabling them to forecast future demands more accurately.
While a firm's value chain is crucial, it is only one component of the broader 'Industry Value Chain' (Ward & Peppard, 2003). Amazon's value chain is intricately connected with those of its suppliers, distributors, and customers. Each player can either enhance or diminish the competitive advantage achieved along the value chain (Laudon & Laudon, 2006).
Amazon boasts one of the world's most sophisticated supply chain systems, driven by proprietary applications that manage various aspects, including warehouse management, transportation, demand forecasting, and inventory planning. The tight integration of Amazon's supply chain enables rapid order processing, allowing customers to receive real-time information on shipping and packaging. Effective supply chain management has been identified as a critical factor in gaining competitive advantage, with responsive supply chains being a common trait among market leaders (The Economist).
Amazon's journey towards becoming the most customer-centric company extends beyond its own operations. They have formed strategic alliances to overcome competitive forces. One notable example is Amazon Web Services (AWS), offering technical and logistical solutions to other firms. This initiative not only expands Amazon's revenue streams but also solidifies its position as an industry leader in cloud computing.
In the future, Amazon is likely to continue leveraging technology to enhance customer-centric operations. Expanding AWS services, strengthening its logistics network, and exploring innovative technologies like drone delivery are all part of Amazon's strategy to maintain a competitive edge. Furthermore, Amazon's commitment to sustainability is reflected in its investments in renewable energy and initiatives to reduce its carbon footprint.
In our exploration of Amazon's competitive advantage through information systems, we've already seen how they effectively utilize technology at each stage of the internal and external value chain. In this section, we will delve into Porter's Five Forces framework to better understand how Amazon navigates the complex landscape of e-commerce, and we will also consider their strategies to sustain their competitive edge in a rapidly evolving market.
Michael Porter's Five Forces framework assesses the competitive dynamics within an industry by analyzing five key factors: the bargaining power of suppliers, the bargaining power of customers, the threat of new entrants, the threat of substitute products, and competitive rivalry within the industry. E-commerce and the internet have significantly altered the dynamics of these forces by providing customers with unprecedented access to information (Ward and Peppard, 2003).
The internet offers consumers near-perfect visibility into products and prices across the market. Customers can freely browse various internet portals and utilize price comparison platforms like Kelkoo to compare prices from different suppliers. The ease of switching suppliers with minimal costs and the abundance of alternatives give customers significant bargaining power. Recognizing this, Amazon took proactive measures in 2000 by inviting other retailers to sell their products on its platform, a pioneering move in the industry. This strategy, initially perceived as risky, eventually boosted overall sales for Amazon. Sales of third-party items on Amazon's platform grew from 6% in 2000 to 28% in 2005, demonstrating the success of this approach (BusinessWeek).
Amazon's ability to keep customers on its platform while they explore offerings from third-party retailers also contributed to increased direct revenues. This synergy between Amazon and its partners demonstrates their adeptness at addressing high customer bargaining power effectively.
Today, Amazon's e-commerce platform serves as a marketplace for hundreds of thousands of retail brands and individual sellers, allowing them to reach new customers. In 2006, Amazon introduced the "Fulfillment" program, enabling businesses to use Amazon's order fulfillment and customer service infrastructure. This initiative helped Amazon combat competitive forces, particularly the threat of substitute products and new entrants. The relatively low capital required for new entrants to establish an e-commerce presence makes competition in this space intense. Amazon faces challenges from both online retailers and traditional retailers expanding their online presence. Multichannel retailers, like Wal-Mart and Tesco, leverage their physical stores and online platforms, offering customers options like in-store pickup, which appeals to those seeking immediate access to products or wanting to avoid shipping costs (The Economist).
As Clarke (2001) points out, the ubiquity of internet technology and universal standards makes it easy for rivals to compete on price alone and for new competitors to enter the market. Therefore, competitive advantage in the e-commerce industry is derived from information use rather than technology. Amazon has consistently adapted to this reality by focusing on data-driven personalization and customer-centric strategies.
In the long term, Amazon is positioning itself as more than just an online retailer. The company is making significant investments in digital media distribution, aiming to provide downloadable music, video, and books to customers. The Amazon MP3 digital music store, which offers tracks without digital rights management (DRM), has already become a competitor to Apple's iTunes. By embracing digital downloads, Amazon is proactively addressing the changing preferences of consumers who seek instant access to media content (The Economist).
Amazon's history is marked by strategic alliances with various firms, such as Borders and SmugMug. These alliances have allowed Amazon to leverage its technological leadership in the e-commerce space to generate additional revenues and advance its strategic objectives. Amazon Web Services (AWS) is another example of Amazon's strategic moves to maintain its competitive advantage. AWS targets software developers, offering a range of web services. With a community of over 240,000 registered developers, AWS has become a thriving ecosystem. Moreover, Amazon has substantial computing capacity, and renting it out to other businesses, like SmugMug, is a smart way to maximize returns on their technology investments (The Economist).
Jeff Bezos, the founder of Amazon, envisions Amazon's future as an organization that continually innovates and deploys efficient software to harness the advances in technology. Amazon's massive investments in technology, such as $186 million in the last quarter alone, indicate their commitment to staying at the forefront of the industry (The Economist).
In conclusion, Amazon's remarkable success as a customer-centric company hinges on its strategic deployment of information systems throughout its value chain. By efficiently managing information, personalizing customer experiences, and continually adapting to market dynamics, Amazon has established itself as a global e-commerce powerhouse. The company's proactive responses to evolving industry forces, such as inviting third-party sellers and embracing digital media distribution, demonstrate their resilience and strategic vision. As Amazon opens its infrastructure to developers and invests heavily in technology, it positions itself to continue innovating and maintaining its competitive advantage in the dynamic world of e-commerce.
Amazon's Information Systems: A Catalyst for Competitive Advantage. (2016, Mar 13). Retrieved from https://studymoose.com/amazon-com-a-case-study-essay
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