Market study report on Amazon Inc.

by Sovimean Kheang

Table of content Page #

Introduction 1–2
High-level macroeconomic and industry analysis 3–5
Business model and strategy analysis 6 – 11
Competitive landscape analysis 11 – 13
Conclusion and recommendation 13 – 14
Bibliography 15 – 16

I. Introduction:
Amazon.com was created by Jeff Bezos in 1994 as an online bookstore and it expanded to other
products i.e. music, video games DVDs, …. etc in 1997 (Pratap, 2020). With a continuous development of
its technology strategy via investing heavily on R&D over the last decades, Amazon has transformed its
business model into selling anything that can be sold online where people can search and buy anything
ranging from groceries, fashion, accessories, laptops, mobile phones, ...etc (Berryman, 2014). With the
strategy statement to become the world’s most customer-centric company by offering customers the
lowest possible prices and the best available options on the most convenient e-commerce platform,
Amazon has set these strategy statement as a fundamental in developing strategies to support the
company’s competitive advantages and remain resilient in a very competitive industry (Kandemirli
2018). In addition, Amazon has been leveraging technology as a source of competitive advantage and
reaped the benefits of the economies of scale in addition to leveraging the synergies between its
internal resources and external drivers (Kandemirli 2018).
To date, Amazon is one of the largest e-commerce platforms in the world and the market leader of e-
commerce in the US. Amazon is the second largest brand listed on 2020 Fortune 500 list with a market
capitalization of USD1.7trillion in 2020. The company has achieved substantial growth in the last decade
which is predominantly driven by worldwide online shopping and its cloud-computing based platform
called Amazon Web Services (Pratap, 2020).
This report is segregated into 4 sections:
a) High-level macroeconomic and industry analysis:
i. PEST analysis: Before getting into Amazon’s specific strategy analysis, exploring the
macroeconomic factors play a crucial role in shaping the discussion as to what Amazon
has done successfully in the past to pivot or convert macroeconomic trends in their
favor to shape their business model over the years.
ii. After exploring the macroeconomic factors in PEST analysis, it is important to see how
the industry is performing using Porter’s five forces analysis so that we can understand
how competitive the e-commerce industry is and how Amazon stood strong, despite the
threats in the competitive landscape.

b) Business model and strategy analysis:

i. Business model analysis
ii. Zoom into the firm’s strategy on how Amazon has set a strong foothold in the global e-
commerce space from a corporate level strategy perspective to business strategy
perspective.

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 iii. In addition, this section will discuss Amazon’s three-horizon framework strategy to
understand: (1) its current core activities and how continuous innovation help the
company’s existing business model and core capabilities to grow over the years, (2)
Amazon emerging activities extending beyond its core business to capture new
customer segment / market, and (3) how Amazon seeks to explore new capabilities and
new businesses beyond being just an online retailer because it is obvious that the global
e-commerce market has become far more saturated than it was 10-20 years ago, so
tapping into other opportunities and diversify the business is a great way forward for
Amazon’s business’s sustainability growth.

c) Competitive landscape analysis:

i. Performing SWOT analysis could best describe what the overall strategic positioning of
Amazon in the competitive environment and how to improve its weaknesses, deter
threats and identify opportunities so that Amazon can continuously improve and remain
the market leader in the e-commerce industry.
ii. As e-commerce competition has grown stronger over the years, identifying blue oceans
could potentially help Amazon to well diversify its business’s strategic aspects by
providing better services in some areas than the competitors to then foster a
sustainable growth in consumers’ demand in the medium to long-term.

d) Conclusion and recommendation.

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II. Main analysis:
A. High-level macro-economic and industry analysis:

USA E-commerce sales

759.42
800 CAGR 16%
700
576.53
600
USD billion

505.17
500 441.51
382.42
400 337.15
297.01
260.62
300 199.27 231.24
200
100
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Census.gov

Online retail is a c. USD800b industry in the United States in terms of sales as depicted in the
above graph. The sector grew at the Compound Annual Growth Rate (CAGR) of 16% between
2011 and 2020. The sector is also expected to grow at around 13.7% in the 2021 which is
projected to be largely contributed by sales of books, music or videos (69%) and computers &
consumer electronics (53.2%) (Walk-Morris, T., 2021). US’s online retail market growth is
predominantly driven by a few market players such as Amazon, Apple, Staples, Walmart, E-Bay
and Best Buy (North Polar Consultancy Services, 2014). The following section will provide
analysis on macroeconomic factors affecting the E-commerce sector using PEST and the industry
forces analysis called Porter’s 5 forces analysis.

i. PEST analysis:
As Amazon is continuously expand into grocery and become the largest online retailer of
everything, they have started to compete with traditional stores and everyone else, so
understanding the macro-economic side of things is very important. In PEST analysis, we
will look at political, economic, social and technological aspects (Johnson, et al, 2019).

Political: The countries that Amazon is operating in largely in the US and Europe are
developed nations and very politically stable. As Amazon has now grown its distribution
network into other countries around the world including Asia, Amazon must abide by
each country’s political agenda and regulations in order to gain government support
towards implementation and distribution (North Polar Consultancy Services, 2014). For
example, if Amazon is to enter China and compete with Chinese e-commerce companies

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 whereby the Chinese government has been supporting immensely, Amazon might find it
difficult to compete there (Frue, K., 2018).

Economic: As the country’s disposable income rises, the demand for consumer products
emerge. In USA, Amazon’s largest market, GDP growth rate has increased on average
2%-3% y-o-y over the past 5 years and the country’s average household income rose at
about 6.8% y-o-y between 2018-2019 signifies that Amazon will still be able to grow and
sustain its business (Worldbank data, 2019). As the country expands its businesses to
Asia and developing Asia where the GDP growth rate hovering c.6% y-o-y over the past 5
years since 2014, this is also a great sign that Asia is the region that Amazon might need
to consider tapping more into as the demand is growing and will grow as the economic
growth remained strong (Worldbank data, 2019). Despite COVID-19 pandemic in 2020
and year-to-date 2021, when the economy has been severely hit everywhere in the
world due to social distancing, lockdowns and physical stores closure, E-commerce
businesses have been the least affected, so Amazon has been successfully run and
become one of the biggest winners during the pandemic with strong revenue growth of
38% and 84% growth in net profit (Forbes, 2021)

Social: Online shopping is popular among young population and in the US, 50% of the
total population is under the age of 40 as of 2019 presenting a good opportunity for
continuous business growth of Amazon (Frue, K., 2018). The said targeted customers of
Amazon also emerges everywhere beyond the North American market i.e. in the Asia
Pacific region. However, on the flip side, it might also negatively affect the lifestyle of
the wider population as Amazon has been well-diversified into grocery and everything
else, so people will just stay in one place and bought everything off their coach (Keller
C.R., 2019).

Technological: Amazon have been advancing technologically to meet customer demand

via injecting a lot of investment into R&D. The company has recently doubled their staff
in the UK-located R&D center with the intention to improve logistics and make their
customers happy (North Polar Consultancy Services, 2014). However, there has been
numerous concerns posed by the public that as Amazon’s technology continues to
develop, human labour will soon be replaced by the machine (Frue, K., 2018). The
company has also been looking into using drones to deliver goods to customers,
however, how to do it is a bit challenging there because there are regulations around
drones flying in the city and the issue does not only present in the US but in other
markets as well. On the threat side, cybercrime is looming large in every parts of the
world and Amazon as ginormous as it is today with millions of transactions per day, is
probably the most wanted hacker’s target, so Amazon must pay close attention to this
so that the customers feel at ease when purchasing from Amazon (North Polar
Consultancy Services, 2014).

ii. Industry forces: Porter’s 5 forces analysis

Buyer power: The buyer powers within the e-commerce space is at a moderate to a
lower-high level due to the internet penetration was around 85% as of December 2020
providing the accessibility increases significantly which makes the number of online
retail customers constantly increase, as they can access online shopping platforms easily

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(Kemp, S., 2020). In addition, the prices of products vary between different available so
that buyer can shop wherever they want online (Adamkasi, 2017).

New entrants: the likelihood of potential new entrants into e-commerce industry is
strong because any new or existing businesses can just place their products or services
to sell online. It is notable that due to the recent COVID-19 pandemic, retail businesses
have somehow transformed into online shops as physical stores shut down temporarily
due to lockdowns and people find it convenient to just purchase everything within a few
clicks at home and now people have increasingly become familiar and grown fond of the
online shopping. On the other hand, it is a bit difficult for new entrants to compete as
prices have already been established at better prices as large retailers like Amazon.com
have benefited from large volume sales, purchases and has reached economies of scale
(Greenspan, R., 2016). New entrants might also struggle to gain trust from buyers as
people might not want to buy from unpopular online stores (Greenspan, R., 2016)
However, as getting into e-commerce is low cost and the regulations are still loose, so
entrants into this sector is still easy.

Supplier power: supplier power in this industry is somewhat moderate but a bit higher
for larger suppliers because they are able to supply to several large retailers at large
quantity, hence why they have a higher negotiating power but still they depend on large
retailers like Amazon too so the power of supplier and Amazon stand quite equally
(Greenspan, R., 2016).

Threat of substitutes: The threat of substitute within the e-commerce industry is

moderate with the threats of traditional physical stores where shoppers can enjoy the
experience socializing and trying on clothes (North Polar Consultancy Services, 2014).
However, over the past 10 years, the shift of consumer preferences has evolved around
online shopping because customers can compare different prices of the products.
Additionally, it is quite for physical shops to compete with pricing because online stores
don’t need to have physical stores (Greenspan, R., 2016). However, buyers have to wait
for a few days for the products to arrive, while customers do not have to face such lag
time going to stores (Greenspan, R., 2016). Despite this concern for other online
retailers, Amazon has done a good job in their Amazon Prime membership, offering
these subscribers to this membership the free and same-day delivery (North Polar
Consultancy Services, 2014).

Competitive rivalry: The degree of rivalry is moderate because Amazon and Walmart
took the largest piece of the retail market in the US. With the companies at their scale
being very popular and global, there can be an increased rivalry between them around
the ease of accessibility and price comparison between them (North Polar Consultancy
Services, 2014). However, there is a lower degree of rivalry between these large
retailers like Amazon.com because most of which are small retailers, especially if those
retailers are focusing on niche segment of the retail market which means they do not
directly compete with Amazon and the big retailers (North Polar Consultancy Services,
2014).

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B. Business model and strategy analysis
i. Business model analysis:
a.Target customer segment: Amazon is targeting the mass market and as of 2020,
Amazon has around 300 million active users throughout the US for its online
retail business. Amazon is partly a retailer, shopping mall, 3 rd party logistics
company that rent out its warehouses for businesses (Keller, C. R., 2019)

b.Value proposition: Amazon’s value proposition consists of:

1. Subscription plans: Amazon has Amazon Mom which is tailored for
moms – offering discounts on baby products and household products
with a free 2-day shipping. Amazon also has Amazon Student which
aims to provide numerous discounts and deals for students (Keller, C. R.,
2019). Amazon also has Amazon Prime which offers 2-day free delivery,
1-day free delivery with no minimum purchase and the same day free
delivery for over 3 million items with a qualifying purchase of USD30
and above. Out of approximately 300 million active users (2020), 200
million of them is Amazon Prime members (Kemp, S., 2020).

2. Price leadership: According to a study published recently on November

2020, Amazon ranked first in terms of the market leader in lowest price
when comparing prices of over 18,400 of the same products sold at
Amazon, Walmart, Target, Staples, Home Depot, Wayfair, Macy’s,
Walgreen’s, CVS, Kroger, Nordstrom, Best Buy, Lowes, and Chewy .
Being able to sell consumer goods at a cheaper price give Amazon the
advantages in the market and allows Amazon to retain customers
(Bloomberg, 2013). For example, in winter 2013, Amazon priced their
toys 3% below Walmart on average, a successful tactic to win market
share and customers during holiday seasons (Bloomberg, 2013).

c. Cost structure: Amazon’s cost structure can be segregated into 2 cost bases:
1. Distribution center: One of its largest cost is its distribution center /
fulfillment centers. Amazon has around 110 of this in the US and 185
centers globally. The fulfillment center ranging from 800,000 to 1
million square feet in size and employ more than 1,500 fulltime staffs
Kemp, S., 2020). Warehouses at this scale is one of Amazon’s huge scale
of supply chain’s components. According to McKinsey report published
in 2012 stated that Amazon has competitive advantages over other
competitors as can be seen below (North Polar Consultancy Services,
2014):

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Amazon.com Other retailers
Pick up 90% of the items from suppliers, Pick up only 35-40% of the items from
saving suppliers shipping charges suppliers
c. 20% of the items are in distribution centers Most distribution centers are not
which help reduces inventory days by 3-5 designed to stock products
days
Having trace and track technology which Online and store system are not well
reduces inventory days by 1-2 days integrated
Multiple distribution centers are close to each Only 1-2 distribution centers for
other which allows efficient goods delivery online shipping
Favorable contracts with suppliers, 20% Have higher shipping cost due to
cheaper lower volume shipped
2. Automation: Amazon acquired Kiva systems in 2012, the company who
develops software and hardware systems to streamline the process of
picking, packing and shipping e-commerce products (North Polar
Consultancy Services, 2014). The incorporation of automation into its
business has allowed for more cost saving which then passed on to end
consumers which supports its corporate mission of customer centricity.
Key features of Kiva system at Economies of scale benefits
Amazon
High storage density Offering configurable pods, trays and bins,
no forklift aisles and complete vertical use of
Others
the(primarily
facility using mezzanine warehousing
ads); 5.30% allowing higher product density
system,
Amazon Web
Services; 12.40% compared to Amazon’s existing system
Highest reliability More up-time compared to traditional
system even operating 24/7
Simultaneous pick and replenishment Replenishment and picking can be done at
Subscription services; the same time with full productivity,
6.80%
reducing the holding of inventory days
High volume order picking With the Kiva system, AmazonOnlinewill
stores;
be able to
50.50%
pick up 100,000 of lines per day
High accuracy Every item is verified by scanning bar code
or comparison of photos which
Third-party seller subsequently reducing errors and
servicies; 19.70%
eliminating the need of a separate Quality
Control function
Real time ordering Physical stores; Orders are dropped instantly without any
5.30% delay of waves or batches which reduces
cycle time from hours to minutes
3. Revenue Stream

USD322 billion
(Revenue 2020)
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 — As depicted in the above chart, Amazon’s revenue stream comprised
predominantly of online store sales 52.81% followed by third-party seller
service (usage fee), Amazon Web Services (not retail related) and
subscription fee (Ang, C. and Wallach, O., 2020)
— Usage fee is being charged to online sellers, earning Amazon the
commission from sale of third-party products. USD0.99 fee is charged to the
sellers per successfully sold item + a sales fee which is the percentage of the
final sales value ranging from USD0.45 to USD1.35. Professional sellers also
pay variable closing fees and referral fee ranging from 6% to 25%
(Tinuiti.com, 2020).
— Subscription fee Amazon charges subscription fee on its Amazon Prime,
Amazon Prime Student, Amazon Prime Fresh, Amazon Prime Videos,
Amazon Prime Family (Cuofano, 2019). All these memberships charge
members at:
— USD12.99 (Amazon Prime)
— USD8.99 per month (Amazon Prime Video)
— USD 6.49 per month (Amazon Prime student) (Cuofano, 2019).

ii. Corporate and business strategy analysis:

Amazon’s vision is to be the earth’s most customer-centric company, where customer
can find and discover anything they might want to buy online, and endeavors to offer its
customers the lowest possible price (Analysis of amazon’s corporate strategy, 2018).
Amazon’s generic corporate strategy can be described as concentric diversification
because they based on leveraging technological capabilities for their business success.
With billions of dollars of investment into Research and Development every year for the
past 10 years (USD36b in 2019) (Pratap, 2021) it has allowed Amazon to provide a
secure online web service and the ability to personalize customers’ shopping
experience. Amazon’s breakthrough technological innovation includes:
— Collaborative filtering algorithm for recommendations to boost sales
— Automated and E-mail based customer support system to enhance
customer satisfaction
— Sophisticated supply chain system which allows them to reduce cost of
goods sold by around 5%
— Dynamic pricing algorithm which allows intra-day pricing adjustment to
maintain price leadership
— Search Engine Optimization investment also allowed Amazon to become one
of the top 10 most visited websites, improving brand awareness (North
Polar Consultancy Services, 2014).
Amazon also aims to offer the maximum value for its customers at the lowest possible
price. They have been able to do via minimizing logistics costs. Amazon reduces its
overheads by only stocking a small percentage of its products, so this allows for efficient

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 cost-effective distribution and working capital management allowing the company to
pass on the savings to end consumers (North Polar Consultancy Services, 2014). This
strategy can be explained busing the Ansoff matrix i.e. Overall cost leadership, Cost
focus, Differentiation and Differentiation focus (Team GreyB, 2021). Amazon can be
placed in the overall cost leadership quadrant as it has been relentlessly focusing on
pricing by providing discount via Amazon Prime program, ensuring timely and express
delivery and providing free delivery to make sure that the customers enjoy shopping on
Amazon (Team GreyB, 2021).
Amazon’s strategy is mainly driven by its competitive advantages whereby it uses
technology, reaping on the benefits from its economies of scale and leveraging the
efficiencies from synergies of external and internal resources. To realize synergies, it can
be noticed that Amazon acquired Kiva systems in 2012 to accelerate Amazon’s vision in
the hope to improve the business’s efficiency and effectiveness in its distribution hubs
because logistics and warehouse are the pivotal areas of Amazon (North Polar
Consultancy Services, 2014). In 2017, Amazon acquired Whole Foods in the hope to tap
into grocery and food delivery business segment (Keller, C. R., 2019).
Amazon’s strategy is also built around convenience where customers can just browse
through Amazon and buy everything on the platform. Amazon Prime offering same day
delivery has also helped the company to gain customers’ satisfaction (North Polar
Consultancy Services, 2014).
With the combination of resources allocation, massive investment, ability to cut logistic
cost, economies of scale, imposing growth strategy via acquisition has allowed the
company to expand rapidly and beat its competitors.
iii. Amazon’s three horizon framework strategy analysis:
a.Horizon 1: Amazon’s current core business and its continuous innovation: as
discussed briefly above it can be noticed that Amazon invested very heavily in
R&D and its technological aspects to continue to improve its online retail
platform (North Polar Consultancy Services, 2014). Also, they have been
investing in Amazon mobile application for customers’ convenience as smart
phones have widely been used globally (Pratap, 2020). They also invested in
robotics to improve their warehousing efficiency, to date they have more than
50,000 robots working in the warehouse (Pratap, 2020). Amazon also invested
in Amazon Drones in the hope to use drones for parcels delivery (Kandemirli,
2018).
b.Horizon 2: Amazon has been extending its business model and core capabilities
try and acquire new customer segment and markets. Amazon has tried and
generate subscription service revenue via Amazon Prime which includes
Amazon Prime Video, Prime Music and Prime Reading. While the platform is
running online, Amazon has also been generating ad revenue and co-branded
credit cards (Boss, J., 2017). To tap into grocery segment and food segment,
Amazon acquired Whole Foods. To tap into the brick-and-mortar retail segment,
Amazon also operates 4 physical stores besides Whole Foods i.e. Amazon Books,
Amazon 4-star, Amazon Go and Amazon Pop up. Amazon 4 star is physical
stores that sell the most popular Amazon finds and best-selling products on
Amazon.com. Customers can pick up and return online purchases at the stores
as well. Amazon Books is Amazon physical bookstore (Dudley, R. et al., 2020).

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 Amazon Go is convenience stores chain that are partially automated and allow
customers to purchase products without being checked out by the cashier.
Amazon Pop-up stores are standalone kiosks often at malls to showcase
Amazon’s own products i.e. Kindle, Alexa, Fire tablets and Echo speakers, etc
(Dudley, R. et al., 2020).
c. Horizon 3: Amazon has also been creating new capabilities and new businesses
to take advantage of or respond to disruptive opportunities and to generate
additional revenue streams apart from its core business (Johnson, et al., 2019).
Amazon has been creating products of its own and the well-known ones are
Kindle, Fire TV, Fire Tablet and Echo smart speaker (Cuofano, 2019).
To capitalize on the emerging Artificial Intelligence (AI) segment, Amazon has
developed Alexa – an AI assistant which integrated into Amazon’s devices such
as Echo smart speaker (Dudley, R. et al., 2020). In 2020, Amazon Echo and Echo
Dot held 2/3 of the smart speaker market share, beating Google Home and
Apple Home Pod. Alexa will also be integrated into Fire TV set-up, drone, and
support numerous cars including BMW in their 2021 car models (Dudley, R. et
al., 2020).
Apart from developing its physical products and AI technology, Amazon has also
got into a cloud computing business as the sector has grown exponentially over
the years and the business is called Amazon Web Services (Dudley, R. et al.,
2020).
Amazon Web Services (AWS) was established in 2006 offering cloud-based
services such as storage / data center and analytics (Kandemirli, 2018). In 2017,
Amazon acquired GameSparks, Thinkbox Software and Harvest.ai to strengthen
its cloud computing business (Kandemirli, 2018). As of 2020, AWS cloud data
centers situated in 25 geographic regions in the world with 81 availability zones
and more to come to capture the rising demand of AWS. AWS accounted for
12.4% of Amazon’s total revenue as of December 2020 (Ang, C. and Wallach, O.,
2020).
Besides the above, in 2018, Amazon bought Ring which is a video doorbell
maker because they want to also get into home security sector and to
compliment their Amazon Key Service which is a service provided by Amazon to
put in customers’ parcel inside the garage to ensure that customers’ products
are safe whenever they are not home (Team GreyB, 2021).
In 2020, Amazon bought Zoox which develops autonomous driving because the
company sees that the future of autonomous driving is strong, and they want to
gain the first mover advantage by acquiring one of the top autonomous driving
startups. Amazon also acquired MGM in 2021 to boost its Prime Video
streaming services in the hope to compete with Netflix, Disney+ and Apple TV
(Team GreyB, 2021).

In my perspective, to remain competitive in the market and to still be the

market leader, Amazon must invest into research and development across all 3
horizons.
Diversification into different business lines is ideal for long-term sustainability
growth and to buffer against economic losses or market crash; however,
diversifying too aggressively into non-core business activities that do not
compliment or align with the overall business objectives must be reconsidered.

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 Amazon has been producing low-cost tablet competing in the saturated
(competing with Apple and Samsung) yet declining market as the global tablet
sales figure declined at CAGR of around 3.2% between 2015 and 2019 as the
market consumption declined (Global Tablet Sales, 2020). Hence, Amazon must
now consider eliminating this business line and other non-core business lines
which are facing downturn (Tsukayama, H., 2018).

C. Competitive landscape analysis:

i. SWOT analysis:
a.Strengths:
Amazon has strong background and strong brand awareness. The company has
built on its early success with books and now Amazon has a wide range of
product categories including toys, games, home appliances, to everything that
everyone can think of buying online. Amazon has evolved to become a global E-
commerce giant over the last 2 decades since its inception (Gupta, S. K., 2018).
Amazon’s brand awareness is strong because it has an outstanding track record
on customer satisfaction. Based on newly released ForeSee experience index in
2020, customers ranked Amazon 1st for 9 years straight in customer satisfaction
during holiday shopping season when compared to 100 other top retailers in the
US. (ForeSee.com, 2020).
With its robust CRM system, Amazon has created a customer centric process to
record customers’ buying behavior data to enable the company to offer
individual item, related items or bundle them as an offer based on customers
preferences demonstrated throughout their past purchases or items browsed.
Amazon is a cost leader when compared to other retailers (Greenspan, R.,
2016). Their most important strategy is improving logistic costs by achieving
economies of scale to enable them to lower inventory replenish time and do not
stock too much than they really need so that it gives them cost saving which in
turn bring down the price of goods for end customers too (Greenspan, R., 2016).
Amazon takes pride in its efficient delivery network. With its strategic partners
and its Amazon Fulfilment centers all over the United States and regional hubs
around the world, the company has created a well structured distribution
network in order to make sure their products are available everywhere in the
country – with same day delivery and sometimes free delivery in certain
locations (Gupta, S. K., 2018).

b.Weaknesses:
Amazon has run on an extremely low profit margin at 6.3% in 2020 (Jankowicz,
M., 2021). When compared to Ebay who has been operating at a margin of 17%,
Amazon is at a disadvantage (Jankowicz, M., 2021). Lower margin was caused by
strong competition in the market and their philosophy on being the cost leader
(Jankowicz, M., 2021).
Amazon also has limited physical presence when compared to its competitors
i.e. Walmart and Target because non-online market has also been expanding as
it gives the shopping experience to customers (Greenspan, R., 2016).
In addition, Amazon has limited penetration in developing markets around the
world. Such low penetration in the said market prevents the business from

11
 taking advantage of the high economic growth rates in these markets
(Greenspan, R., 2016).

c. Opportunities:
Amazon should expand in Asia and developing markets because those markets
have low level of competition in E-commerce and the market is not mature yet
but growing at a rapid pace as the economy and consumers’ disposable income
in those increase (Gupta, S. K., 2018).
Amazon has been boosting its physical presence by acquiring Whole Foods,
expanding Amazon Go, Amazon Kiosks, Amazon 4-star and Amazon books. They
should keep on expanding physical presence because this will in turn improves
customer stickiness by allowing them to provide an even better customer
experience by making shopping fun.
It can be noticed that over the years Amazon has been making numerous
acquisitions to tap into other business segments; however, acquiring other e-
commerce companies will also allow them to expand beyond America and
decrease the level of competition as well (Gupta, S. K., 2018)..
Enhancement around Amazon’s subscription service will also give them the
opportunity to increase their subscription revenue and also help increase
customer retention (Gupta, S. K., 2018).

d.Threats:
Low barrier to entry within the industry affecting e-commerce players as the
competition gets tougher, there will be price wars leading to shrinking margin
and probably incur losses (North Polar Consultancy Services, 2014).
Amazon outsourced their payment to 3rd party might be subject to cyber
security risks which could cause Amazon to face serious litigations if cyber-
attacks happen to customers (Gupta, S. K., 2018).
With Amazon’s competitive advantages stated above in the business strategy
section, the company has built up in size and scale over time which makes it
hard for competitors to beat them. However, it’s still worth considering and
addressing its weaknesses and the potential threats as these might impact the
business performance in the near term.

Application of Blue Ocean strategy of Amazon: Amazon has started early on the era of
internet boom, when brick-and-mortar stores are still running well in the US i.e.
Walmart, Target, BestBuy,… etc., Amazon established as an online shopping platform
which eliminate the need of physical store and can operate 24 hours a day and 7 days a
week (IBS Americas - international business school – Americas, 2018).
While delivery is the biggest challenge for e-commerce, Amazon has continuously been
improving its delivery time and now it offers 2-day delivery and even the same day
delivery for some geographies for Amazon Prime Subscribers. With its memberships, it
allows the company to generate subscription revenue as another source of income and
also improve customers’ loyalty and customers satisfaction (IBS Americas - international
business school – Americas, 2018).
In terms of blue ocean, Amazon has been investing heavily in cloud computing, artificial
intelligence, consumer electronics and Amazon Web Services to tap into the emerging
market which concentrates around new technology innovation which helps create new

12
 consumers’ demand (Goulart, C., Jr, 2019). For instance, we look at their creation of
consumer electronics and AI for example Echo Dot – with Alexa AI assistant which has
gained strong popularity in the AI assistant space (Goulart, C., Jr, 2019).
I think integrating Alexa, AI assistant, into different consumer electronics and vehicles
generate high income for Amazon and building an even stronger consumers’
attractiveness around Amazon’s ecosystem. Partnering with consumable electronics
company and car company is a good way forward for Amazon to building an even
stronger Amazon’s ecosystem branding by leveraging on its user-controlled voice
assistant, Alexa.
Moreover, Amazon has also developed AWS to attract new customers demand around
cloud computing, data center in the growing yet uncontested segment (blue ocean) to
find growth opportunities instead of sticking just try and beat every e-commerce
business that enters the market.

III. Conclusion:
As Amazon has become bigger and bigger every year with its cutting edge technological
innovation and great growth strategy very well aligned with its core business model, it has
gained strong economies of scale with its warehouses spreading across the United States and
fulfillment centers all over the world which allowed Amazon to cut costs and adding on to the
fact that Amazon has been deploying robots to work in its warehouses, this has further given
Amazon the competitive edge that other retailers might find it very difficult to duplicate
(Analysis of amazon’s corporate strategy, 2018).

The fact that Amazon is massive and able to get the best possible prices from suppliers, Walmart
was able to do the same but the only disadvantage that these physical supermarkets and malls
cannot do is that they have a higher cost structure than Amazon. Amazon can drop prices and
still earn money, while physical stores cannot do so because they have huge overhead costs to
bear (Analysis of amazon’s corporate strategy, 2018).

Despite having the competitive advantages and a strong value proposition that not any business
can imitate, Amazon also have some strategic challenges such as competitive threats,
operational complexity and seasonality issues (Kemp, S., 2020)

Competitive threats evolve around both inside the e-commerce retail industry and other
industries such as digital content, digital media devices and cloud computing / Amazon Web
Services (Kandemirli, 2018). The competition around retail market could intensify in the short to
medium due to COVID-19 pandemic and companies like Walmart and Best Buy have been
developing their competencies to sell their goods online. In addition, competition in the cloud
computing space have recently grown stronger as Apple – iCloud, Microsoft Azure and Google
have stepped up their game to compete in the cloud computing and AI space (Kemp, S., 2020).
These companies are also strong in their field and have been in the IT sector for many years, so
disrupting Amazon’s growth in this segment is not difficult for them.

In addition, operational complexity might have caused a bit of a challenge for Amazon as the
company expands operation in North America and other countries. The operational challenge
posed is the fact that they need to scale their IT system, infrastructure and human resources to
keep up with the pace of the growth (North Polar Consultancy Services, 2014). Such rapid
expansion might put pressure on Amazon’s management, staffs, financial resources and its

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operation. If they do not have a strong Management in place, managing the growth will be hard
which could potentially lead to growth limitation, damaging reputation and affect financial
results (North Polar Consultancy Services, 2014). Amazon has already been operating on low
profitability, so if they also face such issue, there will be a loss of investors’ confidence, reduce
brand perception and subsequently affecting its market share (North Polar Consultancy Services,
2014).

Last but not least, seasonality issue is another main strategic concern because usually the
demand spikes in Q4 of the year which is the holiday season, so Amazon might need to work out
and strengthen their ability to be able to keep up with the seasonality issue by stocking or
restocking popular products in adequate amount because if they are unable to do this, it can
have a significant impact on the sales and future growth; however, if Amazon stocks too much,
it will lead to inefficient use of the inventory and subsequently offering large discount which
could then hamper profitability (North Polar Consultancy Services, 2014).

All in all, Amazon has been a very successful business with a strong value proposition that
concentrates around customer obsession which consistently drive its strategic objectives and
vision to become the biggest retailer in the world. Amazon’s way of continuous innovation to
further improve their core retail business and identifying blue oceans along the way by
expanding beyond their core business activities have been a success that not anyone could
imitate easily. In my perspective, improving the core business model, increasing current
customers’ lifetime value and at the same time exploring blue ocean to target new customer
segment and creating new demand can help extending Amazon’s market reach while generating
a strong Amazon ecosystem as well as deterring threats against new competition and other
strategic challenges.

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