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Amazon.

Com Case Study

CASE STUDY 10

Amazon.Com: An E-Commerce Retailer
Patrick Collins, Robert J. Mockler, and Marc Gartenfeld STRATEGIC MANAGEMENT PMN6023 Prof. Madya. Dr. Hj. Hamzah Dato Hj. Abdul Rahman
Prepared by :

ADE SUHERLAN 89775

Online auctions. Tools and Kitchen Segment. Sales and distribution. there are zShops. safe shopping guarantee. and increased shareholder value. Internet. Under pressure from the financial market s to abandon the company’s oft-stated goal of sacrificing short -term profits for building long-term growth. had made the retail future look uncertain.com faced pressure from increased competitions. the Amazon’s CEO proved that his online retail business model could produce operating profit. In an earnings statement announcement released January 23.com offer auction service and a store-hosting program for small and medium-sized business (zShops). Partnerships. Amazon. Amazon. Japan. and wireless selling platform (PDA. Electronics. Web Operations. and early 2003.com also based on geographical region these are Domestic (US) and International markets (Canada. Amazon. 2003. Toys. there was moratorium on the taxation of e-commerce transactions.Com is considered to be the premier online retailer in the world. Music. and UK).com implemented numerous website management. Amazon. This pressure.com customer’s came from variety generations there are senior.com use Television and radio. the company was still facing pressure from the stock market to produce consistent operating profits and to prove that its business model worked finally over the long-term. licensed technologies. poor economic environment and sales tax. Market segmenting of Amazon. search. the company also provide customer service there are product recommendations. cell phones). This method allowed its customer to store their billing and shipping information on the company’s website. Apparel. Video/DVDs. expanded product offerings and overall sales growth. generation Y.com was faced with the task of developing an effective differentiating enterprise wide strategy if Amazon. transaction processing and fulfilment services and other systems. which it patented.com focused on increasing market share and offering superior customer services (strike a balance between increasing market share and producing profit. Produced profit by cutting expenses. recommendation. Technology. using a combination of proprietary technologies and commercially available. customer interaction. Amazon payment option.com focus on increasing sales and reducing expenses to produce operating income. Germany. Financial Position. in term of Management strategy. Amazon. Company again focused on proving the viability of his business model. Services. print. Amazon. encryption technology. in early 2000 facing issue of sales tax. combine with a decreasing customer confidence level and an increased unemployment rate.COLLEGE OF ARTS AND SCIENCES UNIVERSITI UTARA MALAYSIA 2008 Abstract Amazon.com sold a wide variety of products. Products. Customers. baby boomers. Amazon. generation X. this company showed some outstanding financial numbers. Amazon Web Services. market share. In the other hand also concern with patents and trademarks. In term of Advertising. Amazon. Stock option needed to be addressed for Amazon. Amazon. Customer service. share the love program.com. . Amazon.com developing 1Click ordering method. A-to-Z guarantee. there are Books.com continued to meet its internal goals of focusing on increased market share.com was to survive and prosper against aggressive competition over the intermediate and long-term futures. For the future. Amazon. France.

Key Issues on the Case Some particular issues was found on this case. those particular issues will be threats and weaknesses for the company. maintain Brand Image and Quality and Innovation products. Internet tax moratorium law and sales tax issues. increased stakeholder value and reducing expenses. Variety of offering products. etc). yet in the other hand. Financial ratio that indicate by financial statement 5.Com (strength and weaknesses).Com. 4. Increase in competition(competitor entry to Amazon. Focused on increasing profit and market share. 3. Pressure from financial market to abandon the company’s oft-stated goals of sacrificing short-term profit for building long-term growth. and poor economic conditions 2. is appropriate to use IFAS (Internal Factors Analysis Summary) which is one way to organize the internal factors into the generally accepted categories of Strength and weaknesses as well as to analyze how well a particular . Technology (1-Click ordering) and Networking (Partnerships. on one hand it’s become strength and opportunity for Amazon. affiliation agreement. Focused on customer satisfaction and loyalty with provide superior customer service. Those key issues are: 1. Lack of control in term shipping and distribution Sales minimum for free shipping cost 6. Analytical Tool and Technique To analyze and synthesis some internal factors of Amazon.Com market.

02 0.0 0. Lack of control in term shipping and distribution and Sales minimum for free shipping cost Total Score 0.0 2. yet remember increasing cost 0.10 Main Weakness Must shortest 0.15 4.20 0. insurance.5 3.0 5. Sipping options.90 0. 2. overhead cost 4) Variety of offering products. as follow: IFAS Analysis Internal Factors Strength : 1) High level customer service.03 4.15 0.60 1.0 Key factor to success.Amazon.Com and analysis.00 3.04 0. Must operate in free sales tax locations. free shipping ordered over a minimum levels.00 Shall be decrease Must be carefully Focusing on certain product Continuous improvement and changing 3) Financial and capital position.00 3. Capacity of the company.20 4. location had to be an area with people who had necessary programming talent to develop software. closeness to a major book wholesaler.60 0. Customer service and different programs. This table shows internal factors result scanning for Amazon. Unfocused where company Offer everything for every one (philosophy) 4.15 0.54 .15 0.09 Focused Good relationship 1.05 0. Competitive Prices & delivery cost.0 2. Quality of services. Quality and Innovation product 5) Technology (very easy to use/ 1-Click ordering) Networking and Weaknesses : 1.Com’s management (rating) is responding to these specific factors in light of the perceive importance of these factors to the company.05 0.00 0.0 4. distribution centre. Collecting payment period 30 to 40 days.60 Comments 0. 2) Market share Weight Rating Weighted Score 0. had inventory and administrative cost 3. Brand Image.

Suppliers and partners 5. but Amazon.30 0.The average weighted score of firm in industrie is always 3.0 4.25 4.30 0.08 1.10 4. international market (increasing market share) and shopping habits by website also growth.48 0.00 Main opportunity 0. The growth of demand (increasing broadband access/ internet user world wide). threats is very high) = Below average (opportunity is below.0 3.12 0.00 3.Com has total score is 3.24 3.10 0. External Factor Analysis Summary (EFAS) for Amazon.20 0. Poor economic condition and increase unemployment rate 0.Com EFAS Analysis Table Key External Factors Opportunity 1. it also has some treath and weakneses which have to manage. Decreasing customer confidence level 3. for international market local law and customs Total Remarks: Weight 1.0 (very unimportant) Rating 1 2 3 = Poor (opportunity is poor.0 1.0 3.0 3. Technology and computer user is growth 2.05 0. Loyal customer Threats 1.67 Weight Rating Scores Comments 0.15 0.0 0. above average or strength.0 0. Competitors 2. Sales tax barrier (law). threats is high) = Average (opportunity and threats are equal) .40 Increasing the cost Maintain Main threat Quality of service Economic condition Good relation Influence cost 4.0 4.0. Expanded products offerings and sales growth 3.10 0.Com must be carefully.54.0 (Very important) – 0. Amazon.80 0.

international market (increasing market share) and shopping habits by website also growth. it also has some treath and weakneses which have to manage.60 0.com strategy formulation as follow : Strategic Factor Analysis Summary (SFAS) Matrix Strategic Factors Weig ht Ratin g Weight ed Score Duration S H O R T I N T E R M E D I A T E L O N G Comments 1.67. Expanded products offerings and sales growth (O) 0.4 5 = Above Average (opportunity is high. threats is below) = Outstanding (opportunity is very high. Decreasing customer confidence (T) level .32 0.03 4. The highest-weighted EFAS and IFAS factors shall be appear in the SFAS matrix.0 4.Com has total score is 3.16 0.Com must be carefully. threats is poor) The average weighted score of firm in industrie is always 3.0 4.08 0. but Amazon. The growth of demand (increasing broadband access/ internet user world wide). above average or strength.09 X X X X X X X X X X X Main opportunity Must focused on some certain product Competitor is main threat Serious threat for company Increase bargaining power 3.0.15 0.0 3. Technology and computer user is growth (O) 2. Amazon. its provide information that is essential for Amazon.15 0.04 0. Competitors (T) 4.0 0.0 3.05 0.

produce profit margin (operating profit) 0.81 X Patented.06 2. Competitive Prices & delivery cost. overhead cost (S) 0.15 0.0 0. of offering products and Quality (S) Technology (very easy to use/ 1Click ordering) and Networking (S) 12.64 .5. Must operate in free sales tax locations. distribution centre.5 0. High level customer service.0 0. free shipping ordered over a minimum levels (S) 8.0 3. Brand Image.00 3. Innovation continously.18 4.15 X X Quality key to success 9.06 4.20 X X Carefully increasing cost 6.20 X X Influence cost 1.0 0. Sales tax barrier (law).21 X X X X X Key success factor Decrease because competitor Decreasing expenses. Quality of services.10 2. Customer service and different programs. Market share (S + O) 0. Capacity of the company. insurance. closeness to a major book wholesaler (T+W) 0.15 X X 0.05 3.5 0. Sipping options. for international market local law and customs (T) 7. location had to be an area with people who had necessary programming talent to develop software.60 0.5 0.05 4. Suppliers partners (T) and 0. key to success 10. Financial and capital position. Variety 11.

overhead cost 4) Variety of offering products. TOWS Matrix analysis is reconciliation strength. Brand Image. opportunity and threats of company to formulated some strategies there are SO. distribution centre. Sipping options. Quality and Innovation product 5) Technology (very easy to use/ 1-Click ordering) and Networking WEAKNESES (W) 1. Quality of services. ST. WO and WT. ST strategy chosen when company has strength to facing threats. free shipping ordered over a minimum levels. Capacity of the company. location had to be an area with people who had necessary programming talent to develop software. Competitive Prices & delivery cost. closeness to a major book wholesaler. 2. SO strategy chosen when company has a streght to utilizing some opportunities. Must operate in free sales tax locations. Customer service and different programs.After analyze the company environment using EFAS and IFAS on the input stage. The key factors that used in TOWS matrix are key factors that using in EFAS and IFAS. had inventory and administrative cost 3. Collecting payment period 30 to 40 days. WO strategy chosen when company attempt to break a weaknesses by utilizing opportunities and WT strategy chosen when company attempt to break a weaknesses and avoiding threats. Unfocused where company Offer everything for every one (philosophy) 4. weaknesses. 2) Market share 3) Financial and capital position. TOWS MATRIX AND STRATEGY ALTERNATIVES IFA EFA STRENGTH (S) 1) High level customer service. Lack of control in term shipping and distribution and Sales minimum for free shipping cost . insurance. the next stage is analyze these EFAS and IFAS result in TOWS matrix. This matrix constitute of continue analysis tools in the reconciliation stage which is important in determined and develop a proper strategy.

Matrix IE Analysis This matrix used to understanding strategy position and alternatives strategy of company by using total score IFAS in X axis and total score EFAS in Y axis.0 POOR 1.0 3. Expand to potential market area and international market 4. The growth of demand (increasing broadband access/ internet user world wide). Maintain technology and continous improvement WO 1.0 I • 3. Innovation to improve competitive advantages WT promotional activities by internet Increasing cost efficiency Emphasize cost reduction 1. can be knows which one of the best strategy for the company. 3. Asset Devastation 6. Poor economic condition and increase unemployment rate 4. Maintain competitive price 3. Furthermore. Maximize 2. Maintain product quality 1. Maintain distribution channel and market share 3.0 – 4.0 HIGH 3. for international market local law and customs SO 1.67) II III TO TA L SC O RE EF A S .0 (3. Horizontal Integration 5. Sales tax barrier (law). Provide market penetration 3. Suppliers and partners 5. Develop new product by modification/ creating new product 4. Loyal customer TREATH (T) 1. Decreasing customer confidence level 3.3. Developing new market 2. Expanded products offerings and sales growth 3.OPPORTUNITY (O) 1. Competitors 2. international market (increasing market share) and shopping habits by website also growth. Technology and computer user is growth 2.0 2. TOTAL SCORE IFAS STRONGTH AVERAGE 4.54. Maintain competitive price 2. Reducing distribution cost and shipping cost ST and customer service 2.

4) Total Asset 2135 ROA (2001) = Net Income = (556. Maintain technology and continous improvement. 3.4) = 0.1462 = 0.0350 = (32.4) Investment 4279 = Net Income = (556.Com Return on Investment (ROI) ROI (2000) ROI (2001) ROI (2002) = Net Income = (1411.54) % .67). knows that Amazon.3298 = 0.6612 = 0. Alternatives strategies in this cell are Maintain competitive price.01) % = (7.IV AVERAGE 2.0 – 1. it means that Amazon.54.12) % = (34.7) Investment 3808 = Net Income = (150) Investment 4280 = 0.98) % = (14.5)% Return on Asset (ROA) ROA (2000) = Net Income = (1411.0 – 2.99 VIII IX 1. Expand to potential market area and international market.3401 = 0. Financial Statement Analysis for Amazon.0 Based on the IE matrix analysis.Com has strength internal performance condition (involve big opportunity) but also in industry it has high risk and threats.0754 = (66.Com stay in cell I (3.99 V VI 2. Maintain distribution channel and market share.7) Total Asset 1637 ROA (2002) = Net Income = (150) Total Asset 1990 Net Income (NI) (2000) = Net Income = (1411.0 VII LOW 1.62) % = (3.

7) (2002) = Net Income = (150) Liquidity Current Ratio (2000) = CA = 1361 = 1.com. during the period of year 2000 to 2001 straight to improving in financial performance.516 CL 1066 = 139.1% Quick Ratio (2001) = 1. Current Ratio during 3 years average is 140.com has a good .com earns operating profit. it is because Amazon. Amazon.6% Quick Ratio = Cash + Marketable Securities + Receivables / Total Current Liabilities Quick Ratio (2000) = 822 + 278 +0 975 = 540 + 456 +0 921 = 738 + 563 +0 1066 = 1. Net Income during 3 years average is (706.312 CL 921 Current Ratio (2002) = CA = 1616 = 1.081 = 108. The data shows that Amazon. In 2002.98)%. Quick Ratio during 3 years average is 114.04% Analysis and Discussion Financial Strength Amazon.89)%.8% Quick Ratio (2001) = 1.396 CL 975 Current Ratio (2001) = CA = 1208 = 1.8%.2% = 151.3%.(2001) = Net Income = (556. ROI during 3 years (2000 to 2002) average is (16.6% = 131.com sacrificing short-term profit for future growth. ROA during 3 years average is (35.com reduced the expenses particularly in promotion expenses. Amazon.03).128 = 112.2204 = 122.

competitor has accessibility to entry market and barrier to entry quite easy. because some competitor in industry can be substitute and also the risk is very high for the business which using high technology and technology itself very fast to change. Control on supplier and distributor by company is quite weak because they have bargaining power among company in industry. give the facilitation to access easier than another. The opportunity to potential growth among company in industry is similar. different with others and they have competitive advantage. price increasing. Economic condition also affect industry stability such as inflationary rate shall be influence consumer buying power. potential profit that can gain also has similar opportunity among companies. operating cost should be done to be cost leader in industry. companies should be have financial stability performance to compete with others. each company in industry always improve technology innovation to be the best in technology.financial performance for during the period. Environment Stability In this industry technology changing every time. Industry Strength The competition in industry is very high. it become value added to company itself. Technology is main resources that assurance the business viability. The condition brings to difficulty to . The company in this industry is very easy to exit from market. In industry. so it can be direct influence to demand and bringing on demand variability which very difficult to predict by companies. Efficiency in term resources utility. new technology and innovation become important factors to be company attentions.

market share increase become main issue. SO • • • • Maintain competitive price (free shipping for minimum ordered. With the compatitive avantage such as in term technology with 1-Click ordering methode gave easy to accesibility for customer. distributor. Competition pressure also can be causation of instability environment.com such shows in TOWS matrix above. etc) Maintain distribution channel and market share Expand to potential market area and international market Maintain technology and continous improvement WO a. Developing new market b. we try to generate some alternatives strategy which can be used by Amazon. emplyee. Capacity of company should be utilize by improving company prductivity such as product and market expanding.com provide high level service quality for their customer and other stakeholder (supplier.access or entry market (barrier to entry). Provide market penetration c. Develop new product by modification/ creating new product . Competitive advantage In this case. Amazon. Alternatives Strategy In this case. shareholders).com agigated for increasing market share in long-term. Also internal efficiency such as decreasing promotional expenses is good for short term but in the long-term must be find other alternatives. Customer loyalty also become notice for the company to maintain. To differentiate with competitor. Amazon.

This strategy in line with second alternative which CEO and management team offered. 1. security and accessibility in term of payment processing bringing on customers comfortable. manufacturers. It can cause the efficiency for the company. In my opinion here. . this strategy the company can be share risk and cost with the partners.d. guarantee. easy to access. These efficiencies would translate into lower price for Amazon.com case. Horizontal Integration e. Reducing distribution cost and shipping cost ST a) Maintain product quality and customer service b) Maintain competitive price c) Innovation to improve competitive advantages WT Maximize promotional activities by internet Increasing cost efficiency Emphasize cost reduction Recommendation For Amazon. we try to recommendation some strategy which company should be done. Asset Devastation f. This alternative would be the steady cash flow it would receive through the charging of hosting fees and commissions on completed transaction. distributors and retailers to use. Horizontal integration and implement a business to business (B2B) exchange for suppliers.com. Patented technology.

improvement and patented technology to customer and other stakeholder 3. Maintain high level customer services and accessibility and easy to using website and communicate the technology innovation.2. Expand to potential market in international market to increasing market share .