Amazon’s Competitive Analysis Essay
Amazon’s Competitive Analysis
Competitors are the firms that compete to serve the same customers in the same marketplace. Competitors can compete directly or indirectly. Competition happens on two levels: Product or service competition.
Due to the shift of focus for Amazon, it has become the “Earth’s biggest anything store”. Its competitors have expanded from just online book retailers Barnes and Nobles and Borders to top audio retailers CDNOW.com and online auction house e-bay.com. Amazon has an overall lead of 40% market share against the other online retail firms. Their international business has more than doubled over the past 2 years
Amazon’s primary value chain includes purchasing/sourcing, marketing, distribution and after-sales services, which includes returns and exchanges from unsatisfied customers. Their main focus is in the purchasing/sourcing and in the distribution of the products to the consumers. Their investments are therefore, geared towards warehouses in key points of high consumer demand areas and an efficient delivery and distributing system to service all its consumers. Thus, Amazon controls most of its distributing system that spans across borders.
How does Amazon compete?
Competes through Quality, service, and low price.
How effective is each?
Quality – they make sure that their product reach the customer with no damage and always serve their customer with the best product.
Service – Amazon delivers the product within a week. Less lead time
Low price – reasonable pricing.
Amazon is power because they were the first to start an online business. They have more customers due to this. The customers are loyal to Amazon and will do their shopping only at Amazon. Amazon is very profitable and is doing well currently. How aggressive?
Amazon.com has remained on top of the online retailing business despite the entrance of giants such as Barnes and Nobles and Borders. Their success is attributed to two factors; timing and continuing to invest heavily into the inventory and distribution systems. Amazon, by being the first of its kind, has a big lead over the nearest competitors due to their experience and its reputation as the first movers. Their thrust remains on improving efficient delivery systems across borders and to build name recognition as the number one retailing firm in the Internet. They have also ventured into different retail options to keep that lead. Marketing, Innovative inventory and distribution systems, and name recall have helped Amazon build a sustainable competitive advantage.
Will diversification into new markets finally turn a profit for Amazon.com before the dotcom godfather burns through the last of its savings?
In five years Amazon.com has built the world’s biggest online store. However, despite generating expected $1bn (£0.67bn) sales from the Christmas retail season alone, profit has proved elusive. Despite its profligate sales, business-to-consumer e-commerce’s pre-eminent player is not expected to enter the black until year-end, according to financial analysts’ most-optimistic forecasts. Meanwhile, a cost-intensive diversification strategy casts doubt on the prospect of the company ever turning a profit, according to a growing chorus of company-watchers.
In order for any online retail company to remain prosperous and income generating, they must invest a lot of time and money into research and development of more efficient operations and distributions systems. This proved to be key for the Market Leader in online retailing, Amazon.Com.
Conclusion – Many Amazon-watchers believe diversification will saddle the company with an unsustainable cost burden. “There is an incompatibility between its brand proposition of offering a dominant breadth of assortment and achieving profitability,”
b. While the threat from dotcom upstarts has receded with their reduced ability to raise funds on the investment market, the challenge from bricks and mortar retailers adding online stores is getting fiercer. As well as wielding generous Internet war chests from established profitability, physical retailers will benefit from a maturation of the online market.
The lunched of Amazon.com in July of 1995 was the creation of a new and bold way of doing business on the Internet. Amazon.com forced the traditional physical world brick and mortar retailer in the book industry to change the way they target the industry’s consumers and then epitomized Business-2-Consumer e-retailing. Although, Amazon.com started as an online bookstore,
The bricks and clicks mantra revolves around the idea that the winning — and profitable — formula for electronic commerce success is leveraging the best of the physical and virtual worlds. In theory, it should give physical retailers venturing on to the Web an edge over pure dot-com e-commerce companies because they can efficiently extend their existing infrastructure and complement their real world stores. So far, the most successful retailers have been those that have taken an aggressive approach to the Internet like Amazon. The bricks-and-clicks model is gaining momentum as the e-commerce market matures. A growing number of retailers have finally gotten serious about doing business on-line, now that fast-moving dot-com players such as Amazon.com Inc., eBay Inc. and eToys Inc. have carved out market niches.
By creating an independent on-line unit that has the freedom to develop its own merchandising and marketing strategies, Amazon has the freedom and flexibility to capitalize on opportunities. Toys “R” Us Inc. stumbled when it decided to protect its stores and offer only a limited selection of merchandise on its Web site. That gave eToys and Amazon.com a window of opportunity to win customer loyalty and rapidly grow sales, while Toys “R” Us struggled to play catch-up.
The Market is moving toward a system where it is no longer going to be only Internet or only bricks and mortar,” he says. “Amazon’s mandate is not focused on where the business was, but rather where the opportunities are.” Another model is being pursued by Peachtree Network Inc., which is creating an on-line grocery network across Canada. Rather than spend heavily to build warehouses and purchase delivery trucks, Peachtree offers a service to regional grocery chains that lets them provide consumers with an on-line ordering system. The grocers, which already have the infrastructure, process the orders and handle delivery.
Amazon.com has parlayed its Internet expertise to compete very successfully against traditional “bricks & mortar” book retailers such as Barnes & Noble, and Borders; Price line has leveraged its e-commerce patents and business model to challenge the incumbent travel agent industry. Thus, the pure Internet plays are very well-positioned to leverage the Internet to overwhelm their incumbent competitors who are locked into their “bricks & mortar” channels. However this is not necessarily true for all industries. If an incumbent can update its business model and supporting organizational infrastructure, it can successfully leverage the Internet just as effectively.
Companies that exist to engage in commerce in the Internet’s digital marketplaces are known as digital players. For example, Amazon.com exists as a digital player that uses digital processes to transact physical products such as books, and videotapes. By using the Internet as its sole marketing and support channel, Amazon.com has been able to avoid heavy “bricks and mortar” investments that weigh upon its physical competitors such as Barnes and Noble, and Borders. Incumbent competitors are beginning to establish their own websites so that they can continue to serve their clients who are already on the Internet, and also to serve new market segments.
However the pure digital players, if they do not already have brand-recognition or are not affiliated with existing brand names, often have to invest significantly in marketing and other promotional expenditures to gain consumer awareness. Market Entrants Leverage Disruptive Innovations Since market entrants by definition do not have established business models and distribution channels with the related cost structures, they can exploit the strategic flexibility provided by disruptive innovations to devise business models and strategies to compete successfully in the emerging marketplace. Unlike the incumbents who have to work within the constraints of their existing business models, organizational structures, and cultures, these entrants can craft their business strategies based upon the unique enabling opportunities provided by the disruptive innovations.