Apply the Industrial Organization Model and the Resource-Based Model to Determine How Amazon Company Could Earn Above-Average Returns
Amazon.com based in Washington and found by Jeff Bezos in 1994 is global leader in e-commerce and it was the first company to introduce the concept of selling goods on the Internet. Initially Amazon.com started as an online bookstore and its success led Amazon to diversify into other products such as gifts, music, electronics, groceries, toys and many more. Probably today there is no product that Amazon.com doesn’t sell. Amazon.com has developed different internet portal sites for different countries such as Canada, UK, Germany, France, China and Japan.
The core competencies for Amazon has been identified as customer convenience and accessibility, unlimited options for selection, custom-made services, the superiority of the content of the web site, the efficient and good quality search tool to find the items of one’s choice and price. Amazon is building the core competencies through online market development and based on customer needs, also they use internet technology for financial issues and make easy for their customers. Using its Core Competency Agenda, the core competencies of Amazon are used in every segment of its matrix, excluding one. The competencies are being built in the new markets of live auctions, electronics items, greeting cards and tailoring of customer needs; the new core competencies are also being developed in the markets of e-commerce by financially collaborating themselves with internet technology companies such as Exchange.com, Accept.com and Alexa.com, which are emerging tools for the internet marketplace. They are continuously getting advantage by growing their services and selections they offer such as readers, game players, and music listeners. The firm is not presently molting any out-dated competencies and not be at the position in the development cycle to have any disused competencies. Amazon has three main strategies which lead to competitive advantage, firstly cost-leadership, customer differentiation and focus strategy. The first strategy based on offer produces same quality with lower price than the market, the second strategy related to the bigger amount of selection than competitors, and the third one is focus on niche customer through applying one of the two strategies. Also Amazon values affect positively to competitive advantages, the company has two strong values: customer satisfaction and operational frugality, these two factors complement Amazon.com’s operational approach in obtaining and sustaining an efficient competitive benefit and bolstering employees and firm’s performance. Because of its economical approach towards paying less base salary to its employees with respect to its competitors it focuses much more on its business expansion and branding with its saved cost. Amazon has developed an unprecedented customer support only in the span of last 15 years with its unique business model of online business. This not only allows the company to have a cutting edge advantages over the competitors but also makes it a cost leader in its business. It overpasses all the supply chains to reach to the consumers through it innovative e-commerce approach. This allows the company to have a control over its distribution channel and so is able to cut down the prices of its products. The company hires the distribution channels and warehouses in the areas where the cost of dumping inventory is extremely low and forward it’s saving to the consumers in the form of the competitive prices. But, Amazon needs to keep focusing on the research and development of better and more innovative way of serving to the customer, which will not only maintains its market leadership in the online business but also allows it to be all time favorite to millions of its loyal customers around the globe.
Other competing online booksellers are unable to deliver services as those of Amazon due to its recent boom, and its cost efficient way to shop for goods (Leschly & Sahlman 2008). Despite the attempts to use internet to sell their books, the competitors have not been able to overcome the overwhelming reputation of Amazon. However, there are other new entrants that are gaining popularity and that are now real threats to Amazon’s business. Google is one such business whose entry into the market attracted overwhelming interest from customers. The market is therefore showing stiffer competition since Google is a well known and well connected competitor.As one of its recent models Amazon ventured into leasing computing horsepower over the web which is a very welcome solution for those in businesses that will require buying of servers. It is an equivalent of leasing a server at a cost of $876 per year or at a cost of ten cents each hour (Leschly & Sahlman 2008). These kinds of diverse investments are part of what made eyebrow rise on Wall Street. They wondered why, despite Amazon spending billions of dollars developing its business model, it could venture into such businesses that are far not related to the core business. It shows Amazon does understand that the solution to sustained success is business model innovation. While many see Amazon committing its capacity into new ventures, others see that any of these ventures could grow into blockbuster businesses like the e-Books sector.Amazon’s case can in one way be seen as that of William’s Inc. William’s Inc. is a steel pipe manufacturer that ventured into manufacture of pipes that transport internet. In the view of the company the concept in the business is the same and in little wonder, both areas are vastly profitable. Amazon’s venture into a variety of products is firstly to exploit its distribution systems maximally (Campbell & Collins 2010). Most of the products that Amazon sells will use the same concept in distribution as that used in the book business. Just as many companies would enjoy the benefits of economies of scale, so is the case of Amazon. The question may arise if some products like the Electronic Compute Cloud are still in this category. Companies sometimes want to harness their core capacities and capabilities in a way that not only sees the use of the resources but also in ways that are profitable and innovative. Product and customer differentiation are strength to the company. The current trend of Amazon makes it difficult to classify its business model. Instead it seems to be combining different models and no single one is sufficient to entirely sustain competitive advantage. It could also be said that it has created a new business model. This new business model uses the synergy of various benefits to create value for the customers. Some of these benefits are: shopping convenience, speed, discounted pricing, ease of purchase, wide selection, reliability of order fulfillment and lots of information that enable decision making (Campbell & Collins 2010). In its operational strategy, Amazon has managed to enhance its competitive strategy through cost leadership, customer differentiation and focus strategies. Rather than talk of core business, Amazon would rather talk of core capabilities and world class core assets. It is seen to make calculated moves in transforming capacities into profit centers.
To summarize, as Amazon is attempting to bring in a new audience, they need to stay innovative to retain their customers. Amazon has worked on drone delivery, tablets, artificial intelligence and much more in the past to grow their company. It would be a good idea for Amazon to host a competition for emerging students to submit a proposal for a business idea. The most promising idea would be taken into action, and that student would receive a job at Amazon. This would allow Amazon to receive numerous innovation ideas for free while kick-starting a student’s career. It would be a win-win situation for Amazon and the student. If this was a yearly competition for Amazon, their company would grow in recognition across the United States. Top college and high school students would be looking for the opportunity to help out Amazon and receive a job. This event can only lead to success for Amazon, strengthening their relationship with current college students. A strong relationship with students will make Amazon a more attractive option for college graduates, allowing Amazon to acquire better talent.
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