AMAZONE STPs ANALYSIS

Amazon's Segmentation, Targeting, and Positioning Strategy.

Segmentation, Targeting, and Positioning (STP) is a strategic marketing method that illustrates
how the business plans various marketing activities to compete in the market and engage with
the overall market. According to Schlegelmilch (2016), STP is considered the key guidance for
marketing strategy as it is the primary determinant of a business's success or failure in the
market.

Segment Acquisition

Segment acquisition involves identifying customer groups with similar characteristics (Aaker,
1995). This process offers several advantages and allows a marketing manager to develop an
effective plan for each segment. Molly (2018) suggested that the best approach to acquire new
customers is to understand their needs and preferences, then invest more in acquiring them. Paula
(2018) argues that while acquiring a new customer is more expensive than retaining an existing
one, 65% of the company's business comes from existing customers.

Amazon heavily relies on the customer obsession principle, enabling the company to excel in
various commerce segments. Amazon competes in different sectors with products and services
such as Online retail, Amazon Prime, Amazon Web Services (AWS), virtual assistant devices,
consumer electronics, Amazon Fresh, Amazon Go, and apparel (Baldacci, 2017).

Amazon employs demographic, situational, geographic, and psychographic segmentation to

divide the markets as shown in figure 7 below. Amazon's segmentation is based on actual
purchases, not on what people may have suggested, but rather on what they did. A theoretical
justification for this approach is rooted in Ansoff's 1957 Strategy Matrix (Richardson and Evans,
2007). While developing products can help expand valuable consumer accounts as outlined in
Ansoff's model, there must be a solid segmentation and profiling of customers to track their
profitability as not all consumers or even loyal customers are equally valuable (Kumar, 2009).
Despite this, all of Amazon's customers receive exceptional customer service (Mirow, 2005).
According to Lindic et al. (2012), although the company utilizes web services and various
technologies to support customer engagement, there is no apparent strategic evaluation system in
place to determine each customer's contribution to profitability. This lack of assessment may
have contributed to Amazon's increasing operational costs.

Targeting

After Market Segmentation, another marketing technique is targeting. It occurs once the
organization has identified a segment to offer their product to (Doyle and Stern, 2006). John
(2017) argues that implementing a targeting strategy means implementing the organization's
sales and promotion on a specific segment and that Customers must be offered a product that is
relevant or they will not purchase it.
Amazon provides detailed targeting to reach a specific target audience. This service also allows
targeting individuals' needs when they are ready to make a purchase. These customers belong to
both the upper class and professionals in social circles. Some are finance managers or
professionals who prefer online shopping over visiting a physical store. In particular, Amazon
customers are typically individuals looking for bargains, which is why the company has
designated certain days to offer significant discounts to their customers.

Positioning

Once a company has defined its goals and objectives, it has made an effort to understand how
customers perceive its products and services compared to other options in the market.
Positioning refers to the way a consumer views a product and its competitors (Amin et al. 2015).

As Amazon began selling books online, it sought to captivate consumers as a means of

establishing a sustainable competitive advantage.

Amazon's Positioning Strategy includes low-cost offerings, unparalleled convenience, instant

access, and more, catering to a wide range of customers who could otherwise choose competing
retailers. According to founder Jeff Bezos:

"I didn’t want to repeat the mistake of Steve Jobs — pricing the iPhone in a way that was so
remarkably profitable that the smartphone market attracted competition."

Bezos believed that high profit margins would draw competitors into research and development,
fostering increased competition, while lower margins would attract more customers and offer
greater defensibility. This approach aligns with Porter's (1980) concept of Strategy,
demonstrating that Amazon was delivering both value and affordability to customers.

Amazon's Distribution Strategy

Leblanc (2019) noted that in 2005, Amazon introduced Amazon Prime Service. Customers pay
an annual fee for guaranteed two-day delivery on a wide range of items. The introduction of two-
day delivery significantly contributed to Amazon's growth and success in the online retail sector.
When other online retailers sought to replicate this model, Amazon once again disrupted the
market by introducing one-hour delivery through its Amazon Prime Now Service (now offering
free two-hour delivery). This innovative move by Amazon intensified competition and posed
challenges for its rivals.

Amazon recognizes that prompt delivery is a top priority for customers. Amazon's extensive
distribution network plays a crucial role in meeting this need. With over 55 fulfillment centers
spanning 43 million square feet, Amazon has established a robust and well-coordinated system to
ensure product availability even in remote areas. This underscores the company's development of
a vast global distribution network that continues to expand rapidly by prioritizing customer
needs.

Amazon’s Customer-Centric Marketing Mix: Analysis of the 4Ps

The marketing mix known as the "4Ps" stands as a powerful strategic concept within the realm of
marketing. It posits that a business comprises four crucial components: Product, Price, Place, and
Promotion. These components must align cohesively to drive organizational effectiveness and
cater to the needs of customers (Kotler, 2005). Dhas (2014) has raised concerns regarding the
ongoing debates surrounding the efficacy of employing the 4Ps marketing mix strategy, given
the perpetual shifts in consumer behavior and internal dynamics within companies.

Strategy Involving Product Mix

The term "product" denotes a tangible good or service that consumers are inclined to purchase. It
encompasses physical items such as furniture, apparel, groceries, and more that are acquired by
consumers. As per Singh (2012), the product serves as the cornerstone of any marketing mix.
Amazon's array of products is widely regarded as impressive within the online retail sector
(Ferguson, 2017). The company offers an extensive selection of products that align with its
overarching vision and mission (Ferguson, 2017). Founder Jeff Bezos famously articulated,
'Customers have the money, and our competitors will not send us money!' (Johnson, 2011).

Amazon has solidified its market dominance by introducing distinctive products and services to
its existing product lines (Malczewski, 2011), consistently keeping competitors on edge (Lindic
et al., 2012). By the year 2000, Amazon had rapidly diversified its offerings beyond books,
encompassing CDs, toys, kitchenware, electronics, and more. Bezos underscored that Amazon
represents the ultimate marketplace for procuring any item, a notion now synonymous with the
brand.

Remarkably, Amazon has ventured further by pioneering unique product offerings, fostering
increased opportunities for transactions among users, and garnering a share of each transaction.
This approach has resulted in third-party sellers accounting for 40% of the company's overall
operations. According to Ferguson (2017), this expansion effectively addresses market demands,
ultimately elevating customer satisfaction.

Place Mix Strategy

The Place consolidates scattering channels, warehousing facilities, transportation methods, and
inventory control. Therefore, it is a tool through which goods and services are transferred from
the company to the customer (Singh, 2012). Founder Jeff Bezos had a passion for developing
web services in the mid-1990s and realized he could offer online to avoid the cost base of a more
traditional store and thus compete better on price. When selecting books, he also provided online
customers with the ability to easily search for any book by entering the International Standard
Book Number on Amazon.com. Initially, not having physical stores posed a significant challenge
for Amazon as shipping through postal services resulted in customers' products being delayed by
a day or two. However, it is reassuring to know that any of the 100 million+ items ordered on
Amazon.com can be delivered within 24 hours without leaving home. This rapid delivery time is
made possible by their exceptional distribution centers.

Price Mix Strategy

Price encompasses the total cost a consumer pays for a product or service provided (Singh,
2012). Amazon prioritizes customers in its pricing strategy. The company uses low prices to
attract customers to its products and services (Ferguson 2017). By operating online, the issue of
rent and high operational costs of a physical store closely links Place to Price. Moreover, the
pricing strategies involve setting different prices for a similar product. Amazon implements this
concept through its various websites. For instance, the company's pricing for identical items
differs between the United States and the United Kingdom, each with its own Amazon site
(amazon.co.uk). Additionally, Bezos' commitment to efficiency and keeping the final cost to the
buyer as low as possible ensures that Amazon continues to provide zero profits, instead
reinvesting all future earnings into the company to expand its scale and consequently reduce
costs further in what is known as the "flywheel effect."

Furthermore, Amazon occasionally sells some products below the original cost. It is common for
a book with a recommended retail price of £10.99 to be purchased for £6.99, but listed online at
£5.99, making Amazon the preferred choice. With such a minimal cost base, it is much easier for
the company to take this hit on its margin to fuel the perception of being the most affordable
retailer, rather than maintaining a substantial cost margin above that of its competitors. In this
way, the company's marketing mix demonstrates adaptability to current market prices.

Promotion Mix Strategy

This section of the marketing mix involves the frameworks and techniques that a business uses to
communicate with its target market (Marr, 2019).

Amazon aims to encourage its customers to visit its sites and utilize its online services. The
strategies and methods are employed in a unique mix, prioritized within the company's e-
commerce business:

• Advertising

• Sales promotions

• Publicity

• Direct marketing

According to Huang and Sarigöllü (2014), Promotions are essential tactics for the company to
engage with its target market. For instance, the company offers a membership program for
website owners or online sellers to earn commissions by displaying promotions and linking to
products sold on the Amazon.com site. This approach expands the company's market reach.

Moreover, Amazon utilizes sales promotions as a tactic to entice customers and encourage them
to buy products and services on their platform. The company also leverages discounts and
special deals to drive more sales, thereby reinforcing its brand image through public relations
and improving consumer perceptions about the organization (Hanssens, 2014)
AMAZONE PESTEL ANALYSIS

Political Factors

The growth of any company can be hindered by government regulations and restrictions in its
home country. Amazon, a global web-based store, provides clients worldwide with access to a
wide range of products. Each country where Amazon operates has its own set of rules and
regulations that must be followed. While online banking is convenient, some regulations may
slow down the process. Amazon relies on government support to develop, expand, and generate
revenue, leveraging the power of the internet. The company is also venturing into brick-and-
mortar stores. Amazon heavily relies on e-commerce and global political stability, but is also
influenced by cybersecurity laws (Cuofano, 2020).

Even for a company as large and influential as Amazon, expanding operations and product
distribution into Asian countries may face challenges. Chinese businesses are increasingly
competing with Amazon by diversifying their services to the public, potentially outpacing
Amazon's offerings. Additionally, foreign tax rates can be burdensome. Amazon must stay
informed about fluctuating tax rates due to changing governments in power (Greenspan, 2019).

• Government initiatives to enhance cybersecurity and support e-commerce benefit Amazon's

business, along with the e-commerce sector's overall growth in the region.

• Amazon benefits from political stability, more prevalent in high-income nations. The growth of
the internet retail industry is partially due to government support at various levels (Greenspan,
2019).

• Despite this, the expanding online retail sector poses a potential threat to Amazon from intense
competition, particularly from major international brands entering the online shopping market.

Ecological Factors:

Pollution and climate change are two environmental issues that are currently in the spotlight. The
company's environmental impact is crucial for establishing its sustainability. Amazon.com has
committed to disclosing all relevant information by the year's end. Amazon is facing challenges
in reducing emissions across the company (Frue, 2018). Estimating online retail emissions
accurately is a complex task. Opting for online grocery shopping saves time and effort compared
to visiting a physical store. Amazon aims to have 50% of its shipments carbon neutral by 2030.

With over one hundred million Amazon Prime members benefiting from free two-day shipping,
the carbon emissions significantly increase when customers opt for expedited delivery, as
explained by a company representative. Delaying a purchase decision by a week is equivalent to
saving 20 trees instead of 100 (Cohen, 2017).

• An analysis using the PESTEL framework indicates that Amazon has opportunities for growth
concerning its ecological factors.
• The company's increasing emphasis on environmental causes, advocacy for eco-friendly
corporate practices, and promotion of low-carbon lifestyles along with efficient waste
management strategies could enhance the company's expansion prospects.

Social factors

Insight into consumption patterns can provide information on resource requirements. The local
population's history and culture play a significant role in this. Market potential can be estimated
by considering demographics, cultural development levels, and education. Many people do not
believe that Amazon is harmful to public health. Globally, both adults and children are
experiencing record levels of overweight or obesity. To enhance people's quality of life, there is
growing pressure on the government to implement new laws and change how fast food
restaurants display nutritional information.

Amazon has faced criticism for providing more ways to fulfill desires without leaving home.
Their expansion into the grocery sector, offering home delivery within hours, could negatively
impact customer health by eliminating the need to search for food independently (Frue, 2018).

However, this aligns with customer preferences: easy access to a wide range of products. This is
the key to Amazon's success. They continually add new categories, and their delivery is typically
very prompt. Making a purchase has never been easier. The convenience, variety, and the ability
to shop without changing out of pajamas contribute to the popularity of online shopping.
Additionally, Amazon Prime members receive unlimited fast shipping at no extra cost. Shoppers
of all ages, particularly those with mobility issues or who prefer not to go out, opt for online
shopping. This trend is not limited to the United States and Canada but extends worldwide
(Cuofano, 2020).

Amazon relies heavily on automated systems instead of human labor. From a social standpoint,
the company may face risks due to the rapid decrease in job opportunities. However, it stands to
benefit from the increasing demand for online shopping and overall consumer spending.

Millennials and older individuals who have difficulty moving around appreciate Amazon for its
convenience in ordering online and home delivery.

Technological Considerations

The current state of technology is a crucial factor when evaluating a company's viability.
Business strategies can be enhanced through automation, technological advancements, change,
and technical expertise. This facilitates the integration of new technologies and the development
of production, distribution, and logistics plans (Greenspan, 2019). Amazon has recently faced
criticism for expanding the ways customers can shop without leaving their homes. Concerns
have been raised that Amazon's entry into grocery delivery could negatively impact consumer
health, as it eliminates the need for people to venture out to purchase food (Cuofano, 2020).
Consumers now expect a wide range of options and same-day delivery, demands that retailers
like Amazon are meeting. This is what makes Amazon a dominant player in the market. They
continuously broaden their product offerings and offer top-notch delivery services. The ease of
making a purchase today is unprecedented. The surge in online shopping can be attributed to its
convenience, accessibility, and the fact that buyers can receive orders without even getting
dressed. Additionally, Amazon Prime subscribers benefit from free and fast delivery options.
While the younger generation prefers online shopping, the elderly or those with mobility
challenges may find this method more convenient. This trend is not limited to North America but
is increasingly prevalent worldwide (Farooq, 2019).

• With its rapid growth, the company now faces fierce competition, especially in the tech sector.
Amazon's ability to engage with customers in innovative ways is unmatched. They are
continually exploring new distribution channels to enhance customer service.

• Their accessibility is further highlighted by the easy chat feature for customer inquiries.
Amazon plans to expand its workforce in key technological areas, aiming to deliver exceptional
service to their customers.

Economic Factors

Raw material costs, borrowing rates, and unemployment rates all play a crucial role. These
factors help businesses assess customer purchasing power and adjust pricing, product offerings,
and service delivery accordingly. Favorable economic conditions benefit businesses. Amazon is
not alone in this regard. The retail sector, fortunately, can withstand economic challenges
without major losses. While not immune, retail will likely always attract customers in need of its
products. With increased disposable income, consumers can indulge in items like electronics and
media, both well-represented on Amazon (Dailey, 2021).

However, this also broadens the field of companies that could rival Amazon. For instance,
Walmart is heavily investing in its online platform, expanding product offerings for online
purchase and delivery to customers' homes or workplaces. To enhance customer experience, they
have redesigned their website for easier navigation. While Walmart may pose a significant
challenge to Amazon, others may not stand a chance. In response, Amazon is focusing on
expanding its food offerings. Yet, it's crucial to evaluate if this is the wisest move at present.
Retail stocks declined, impacting the value of Amazon and Walmart shares (Farooq, 2019).

• Amazon faces criticism for reducing employment by replacing humans with robots internally.
Nevertheless, the company asserts that it actively hires for positions abroad.

• Amazon's extensive product range can captivate customers, even if they aren't seeking high-
priced items. The company offers growth opportunities in economically developing countries
Legal Considerations

Various Consumer Privacy Acts highlight the risks Amazon's global ecosystem poses to its
clients. The EU's General Data Protection Regulations (GDPR) present challenges for Amazon
and other companies that store personal customer information. It is imperative to ensure the
security of all customer data. Google and Facebook faced penalties following an investigation by
the European Union, signaling a significant threat to Amazon (Cohen, 2017).

• Amazon complies with all laws and regulations while expanding its operations worldwide. It
prioritizes cybersecurity and customer protection.

• Efforts to enhance its brand image include implementing stricter environmental protection
standards. Furthermore, changes in import and export laws will enable the company to address
competitor challenges more effectively.