Amazon started in 1994 as an online bookstore and is now the biggest online retailer in the world. The company's current market capitalisation (at the start of 2022) is $ 1.7 trillion. The phenomenal growth of Amazon is an interesting case study to look at. This case study will explore the business strategy of Amazon on a global scale.
Introduction to Amazon
Amazon was founded in 1994 as an online bookstore. Its founder, Jeff Bezos, moved to Seattle from New York City. His wife, MacKenzie Scott, also played a huge role in the company's creation. In 1997, Amazon started selling music and videos online. It later expanded its operations by acquiring the various book and accessory stores in Germany and the UK. In 2002, it launched Amazon Web Services, which provided web statistics.
In 2006, Amazon launched its Elastic Compute Cloud. This cloud-based computing platform lets users store and manage their data on the Internet. Later that year, it launched Fulfillment, a service that enables individuals and businesses to sell their goods and services online. In 2012, Amazon bought Kiva Systems to automate its inventory management business.
Amazon's global business strategy
Amazon has a diversified business model.
A diversified business model is a business model whereby a company develops new products and services while exploring new markets beyond its borders. Diversified models can jumpstart a highly successful business.
To learn more about this concept, check out our explanation on Diversification!
At its core, Amazon is an online store. The e-commerce business contributes to over 50% of the company's total revenue but a large portion of the revenue comes from supporting third-party businesses to sell on its platform.
Meanwhile, costs are minimised as Amazon has no need for physical stores. It is an exceptionally high-volume business that maximises efficiencies using the scalable web platform and uses leading-edge data analytics to optimise business performance.
Amazon also works hard to build customer loyalty through excellent customer service such as one-stop shops, speedy delivery, etc. Despite returning modest profit margins, this sector achieves significant cash flow thanks to a highly efficient system of collecting money from customers on the same day. On the other hand, payment terms with suppliers allow Amazon to pay suppliers some months later.
Study Tip: as a refresher, take a look at our explanations on profit, cash flow and budget.
Amazon's business model and strategy
Let's take a look at Amazon's strategy and how it maintains its competitive advantage.
Amazon's competitive advantages are:
Large-scale web presence,
IT capacity and scalability,
Data and analytic capability,
Relentless focus on the customer including the value that customer's place on convenience,
Overall technical capability and in particular the application of technology to achieve business efficiency,
Cash generation from the online retail business.
These advantages have been gained largely through continuous innovation and development of the e-commerce part of its business model.
In the following sections, each of Amazon's core businesses will be discussed in detail. It will be shown how each of them has its own business model and strategy, whilst at the same time utilising the overall corporate competitive advantage and thus achieving synergy with the other core business aspects.
E-commerce
The e-commerce platform has two types: the first is a first-party business, which includes products within Amazon's brand, and the third-party platform, which includes products sold by third-party retailers. Both businesses are managed within the same platform. The e-commerce platform is the foundation of Amazon's overall business.
Amazon's large-scale web presence has mainly come from Amazon's relentless expansion of the e-commerce business which, internally, has led to Amazon's massive IT capacity and scalability.
Data and analytics are used for business efficiency, particularly in the supply chain and distribution centre operations.
Customer loyalty is generated by capitalising on the appeal of convenience when purchasing using Amazon's service.
This business provides significant cash flow which is used to fund other parts of the business.
Amazon Prime
Amazon Prime is a media platform that operates on a subscription basis but with many premium offerings requiring additional customer payments.
High-in-demand music on Prime Music requires an additional payment.
This provides a reliable revenue stream for Amazon.
The Amazon Prime delivery service enhances customer convenience when purchasing from the e-commerce website. But its subscription model provides a more reliable revenue source and is more profitable than its e-commerce business.
Third-party sellers are incentivised to achieve strict delivery timescales so that their products can be offered using Amazon Prime as the delivery method.
Data and analytics capabilities are utilised in the delivery of streaming and physical delivery of goods.
Customer loyalty is enhanced by the delivery convenience and the convenience of media streaming using one web platform.
Advertising
Attention marketing makes use of non-invasive means like social media to capture the attention of the audience.
Amazon is one of the most popular and effective tools for attention marketing on the Internet. It connects consumers worldwide while providing sellers with better visibility for their products. Advertising on Amazon is non-invasive as the audience chooses to engage rather than be interrupted by intrusive ads.
Amazon's advertising revenues are maximised due to the massive web presence of the e-commerce website.
Data and analytics capabilities allow for the capturing of customer insights from the e-commerce website. This knowledge is used to focus advertising on specific customer segments, thus maximising advertising effectiveness.
Amazon web services
Amazon Web Services is one of the company's massive experiments that turned into a successful business. Its vision and the ideas it tested included what could help consumers get the most out of their products. Its main stakeholders are developers, chief digital officers, and information security officers. Its AI-ML (Artificial Intelligence - Machine Learning) platform, Amazon SageMaker, is a key component of its cloud platform that enables developers to create their own machine-learning models.
Amazon's existing IT capacity and scalability are used to offer IT services such as cloud computing, databases and storage to customers.
Amazon's data and analytics capabilities built up from the other businesses are utilised within its service offerings.
Amazon's differentiation strategy
“ The most important single thing is to focus obsessively on the customer. Our goal is to be earth's most customer-centric company. " - Jeff Bezos
Amazon's main strategy is to differentiate itself by developing differentiated products and services that meet the needs of its customers.
A differentiation strategy is a business approach in which a company provides its customers with something unique and distinctive that only it can offer.
At Amazon, differentiation is done by using technology and human resources. The employees are trained to deliver the best possible service to its customers.
Amazon's employees can work efficiently using the technology that it has developed to serve its customers. This includes the algorithms and software tools that help the employees deliver and support their customers.
Amazon also differentiates itself through top-notch customer service.
Amazon has an easy-to-navigate help centre with thousands of self-help FAQs grouped by category. Even if you don't know how to describe your problem in words, you can quickly search for a similar issue and learn to resolve it yourself. If FAQs or community forums don't help, you can reach out to a real person. Amazon provides 24/7 call support. So no matter where you are or what time you call, you'll get the help you need.
Amazon's growth strategy
The success of Amazon's growth and profitability is directly attributed to the company's four core pillars:
Customer Centricity: Instead of trying to be the next big thing, Bezos focuses on being the one who can serve his customers first. Amazon makes the customer experience the most important part of their business. They do it by constantly excelling and developing new products and services that are designed to meet their customers' needs.
Innovation: This philosophy is about coming up with new ways to do things, not for the sake of being creative or impressing investors. In today's world, Amazon is exploring artificial intelligence and outer space, while its private space company is also exploring new ways to serve customers.
Corporate Agility: Agility is about being adaptable regardless of how fast or how big your business gets. When it comes to operating, being able to quickly adapt to changes and respond to them is often the key to keeping a competitive advantage.
Optimisation: Continuous improvement is about improving processes so that you can become more efficient, and it's about bringing value to your customers. While it may take a lot of time and effort to resolve an issue, the benefit can go a long way and contribute to a higher profit.
Many businesses start out strong, with good customer service and innovative ideas. As they grow, they add layers of management and new processes, making it harder to innovate. This is the reason why Amazon has created its 4 Pillars: to keep the focus on the core principles that drive growth and profits. However, it should be recognised that the e-commerce business is reaching maturity and Amazon are likely to achieve future growth through their other businesses.
Conclusion
Over the years, Amazon has focused on improving its online presence by developing products and services that help customers shop easier. Other companies may not have realised the customer loyalty that may be achieved by delivering superior convenience. This strategy has allowed the company to expand into new markets and gain an advantage over the existing competition. It remains to be seen whether their recent ventures into physical shopping and outer space transport will continue this advantage.
Amazon Global Business Strategy - Key takeaways
Amazon started in 1994 as an online bookstore. It is now the biggest online retailer in the world.
Amazon has a diversified business model. At its core, it is an online store, and this contributes to over 50% of Amazon's revenue.
Customer loyalty is achieved by its world-class delivery service.
Amazon's main strategy is to differentiate itself by developing products and services that meet the needs of its customer segments.
The four pillars of Amazon's growth strategy include customer-centricity, innovation, corporate agility, and optimisation.
Sources:
1. Brad Stone, The Everything Store: Jeff Bezos and the Age of Amazon, New York: Little Brown and Co., 2013.
2. Gennaro Cuofano, How Amazon Makes Money: Amazon Business Model in a Nutshell, FourWeekMBA, n.d.
3. Dave Chaffey, Amazon.com marketing strategy: A business case study, Smart Insights, 2021.
4. Lindsay Marder, Amazon Growth Strategy: How to Run a Multi-Billion Dollar Business Like Jeff Bezos, BigCommerce, n.d.
5. Meghna Sarkar, “All-Inclusive” business model of Amazon Prime, Business or Revenue Model, 2021.
6. Gennaro Cuofano, Amazon Case Study – Tearing Down The Whole Business, FourWeekMBA, n.d.
7. 8 Customer Service Strategies You Can Steal from Amazon, Mcorpcx, n.d.
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