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

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

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

00 3. 2) Market share Weight Rating Weighted Score 0. as follow: IFAS Analysis Internal Factors Strength : 1) High level customer service. Must operate in free sales tax locations. closeness to a major book wholesaler.00 Shall be decrease Must be carefully Focusing on certain product Continuous improvement and changing 3) Financial and capital position.Com and analysis.03 4.15 0.60 0.0 2.Amazon.54 .15 0. free shipping ordered over a minimum levels.15 4. Unfocused where company Offer everything for every one (philosophy) 4.00 0.Com’s management (rating) is responding to these specific factors in light of the perceive importance of these factors to the company.15 0. Brand Image. Collecting payment period 30 to 40 days. yet remember increasing cost 0. This table shows internal factors result scanning for Amazon.20 4. Competitive Prices & delivery cost.20 0. insurance.0 0.90 0. location had to be an area with people who had necessary programming talent to develop software.60 Comments 0.10 Main Weakness Must shortest 0.09 Focused Good relationship 1. had inventory and administrative cost 3.0 2. Customer service and different programs.0 5. Lack of control in term shipping and distribution and Sales minimum for free shipping cost Total Score 0.00 3. Quality and Innovation product 5) Technology (very easy to use/ 1-Click ordering) Networking and Weaknesses : 1. 2.04 0.05 0.0 4.5 3. Sipping options. Capacity of the company.02 0. distribution centre. overhead cost 4) Variety of offering products.05 0.0 Key factor to success.60 1. Quality of services.

30 0.40 Increasing the cost Maintain Main threat Quality of service Economic condition Good relation Influence cost 4.25 4. threats is very high) = Below average (opportunity is below. Competitors 2.48 0. Technology and computer user is growth 2. above average or strength.Com must be carefully.The average weighted score of firm in industrie is always 3. Poor economic condition and increase unemployment rate 0.0 3.0 3.80 0.30 0. international market (increasing market share) and shopping habits by website also growth.0 (very unimportant) Rating 1 2 3 = Poor (opportunity is poor. External Factor Analysis Summary (EFAS) for Amazon.00 3.10 0. but Amazon.0 4. Suppliers and partners 5.08 1.0 0.10 4.20 0.0 0.00 Main opportunity 0.0 1.54.0. The growth of demand (increasing broadband access/ internet user world wide).0 (Very important) – 0.0 3.Com EFAS Analysis Table Key External Factors Opportunity 1. threats is high) = Average (opportunity and threats are equal) .0 4. Loyal customer Threats 1.10 0.67 Weight Rating Scores Comments 0.Com has total score is 3. Expanded products offerings and sales growth 3. Sales tax barrier (law).12 0.05 0. it also has some treath and weakneses which have to manage. for international market local law and customs Total Remarks: Weight 1. Decreasing customer confidence level 3.24 3.15 0. Amazon.

15 0.60 0.67.08 0. threats is below) = Outstanding (opportunity is very high. The growth of demand (increasing broadband access/ internet user world wide).16 0. The highest-weighted EFAS and IFAS factors shall be appear in the SFAS matrix.15 0.0 0. Decreasing customer confidence (T) level .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 1.05 0.09 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 3.4 5 = Above Average (opportunity is high.32 0.03 4.0 3. but Amazon. it also has some treath and weakneses which have to manage. above average or strength. Expanded products offerings and sales growth (O) 0. threats is poor) The average weighted score of firm in industrie is always 3.0 3. Competitors (T) 4. Technology and computer user is growth (O) 2.0.0 4.0 4.04 0. its provide information that is essential for Amazon.Com must be carefully. Amazon.Com has total score is 3. international market (increasing market share) and shopping habits by website also growth.

15 0. Market share (S + O) 0. Innovation continously. distribution centre.0 0.10 2.05 4.20 X X Influence cost 1.0 3.0 0.5 0. Financial and capital position. Capacity of the company.60 0. location had to be an area with people who had necessary programming talent to develop software. Must operate in free sales tax locations. Suppliers partners (T) and 0. produce profit margin (operating profit) 0.0 0.15 X X Quality key to success 9. Sales tax barrier (law).18 4.5.05 3. Quality of services.21 X X X X X Key success factor Decrease because competitor Decreasing expenses. free shipping ordered over a minimum levels (S) 8. for international market local law and customs (T) 7. Customer service and different programs. insurance.06 4. key to success 10. closeness to a major book wholesaler (T+W) 0.81 X Patented. overhead cost (S) 0. Variety 11. Brand Image.15 X X 0. Sipping options.06 2.00 3. Competitive Prices & delivery cost.5 0.64 . of offering products and Quality (S) Technology (very easy to use/ 1Click ordering) and Networking (S) 12.5 0.20 X X Carefully increasing cost 6. High level customer service.

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

Expand to potential market area and international market 4. Innovation to improve competitive advantages WT promotional activities by internet Increasing cost efficiency Emphasize cost reduction 1.0 2. Maximize 2. 3. TOTAL SCORE IFAS STRONGTH AVERAGE 4.54. Competitors 2.0 3. The growth of demand (increasing broadband access/ internet user world wide). Poor economic condition and increase unemployment rate 4. Develop new product by modification/ creating new product 4.67) II III TO TA L SC O RE EF A S . Reducing distribution cost and shipping cost ST and customer service 2.0 – 4. Maintain technology and continous improvement WO 1. Maintain distribution channel and market share 3. Provide market penetration 3. Developing new market 2.3.0 I • 3. 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. Sales tax barrier (law).0 (3. Furthermore. Loyal customer TREATH (T) 1. can be knows which one of the best strategy for the company. Horizontal Integration 5.0 HIGH 3.OPPORTUNITY (O) 1. international market (increasing market share) and shopping habits by website also growth. Maintain competitive price 3. Technology and computer user is growth 2.0 POOR 1. Suppliers and partners 5. Maintain competitive price 2. Asset Devastation 6. Decreasing customer confidence level 3. Expanded products offerings and sales growth 3. for international market local law and customs SO 1. Maintain product quality 1.

01) % = (7.4) Total Asset 2135 ROA (2001) = Net Income = (556.IV AVERAGE 2.99 VIII IX 1.0 Based on the IE matrix analysis.7) Investment 3808 = Net Income = (150) Investment 4280 = 0.0 – 2.1462 = 0. Maintain technology and continous improvement. knows that Amazon.99 V VI 2.5)% Return on Asset (ROA) ROA (2000) = Net Income = (1411.0 VII LOW 1. Maintain distribution channel and market share.12) % = (34.0350 = (32. Alternatives strategies in this cell are Maintain competitive price.7) Total Asset 1637 ROA (2002) = Net Income = (150) Total Asset 1990 Net Income (NI) (2000) = Net Income = (1411.4) Investment 4279 = Net Income = (556.54) % .4) = 0.0 – 1.67).Com stay in cell I (3. Expand to potential market area and international market.54.3401 = 0.3298 = 0.Com has strength internal performance condition (involve big opportunity) but also in industry it has high risk and threats.0754 = (66. it means that Amazon.62) % = (3.6612 = 0. Financial Statement Analysis for Amazon. 3.Com Return on Investment (ROI) ROI (2000) ROI (2001) ROI (2002) = Net Income = (1411.98) % = (14.

In 2002. Amazon. Amazon.(2001) = Net Income = (556.com.2% = 151.3%.6% = 131. Net Income during 3 years average is (706.03).396 CL 975 Current Ratio (2001) = CA = 1208 = 1.516 CL 1066 = 139.89)%.com has a good .98)%.312 CL 921 Current Ratio (2002) = CA = 1616 = 1. The data shows that Amazon. Quick Ratio during 3 years average is 114.2204 = 122.04% Analysis and Discussion Financial Strength Amazon.7) (2002) = Net Income = (150) Liquidity Current Ratio (2000) = CA = 1361 = 1.128 = 112. it is because Amazon.com reduced the expenses particularly in promotion expenses.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 = 1.1% Quick Ratio (2001) = 1.com earns operating profit.8% Quick Ratio (2001) = 1. ROI during 3 years (2000 to 2002) average is (16. Current Ratio during 3 years average is 140. ROA during 3 years average is (35.8%.081 = 108.com sacrificing short-term profit for future growth. during the period of year 2000 to 2001 straight to improving in financial performance.

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

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

Asset Devastation f. It can cause the efficiency for the company. . 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. this strategy the company can be share risk and cost with the partners.com. These efficiencies would translate into lower price for Amazon. This alternative would be the steady cash flow it would receive through the charging of hosting fees and commissions on completed transaction. easy to access. In my opinion here. Horizontal integration and implement a business to business (B2B) exchange for suppliers. Horizontal Integration e. manufacturers. Patented technology.d. This strategy in line with second alternative which CEO and management team offered. guarantee.com case. we try to recommendation some strategy which company should be done. distributors and retailers to use. security and accessibility in term of payment processing bringing on customers comfortable. 1.

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

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