September

AMAZON CASE ANALYSIS REPORT

7, 2010

Contents
INTRODUCTION...........................................................................................................................................2
EXECUTIVE SUMMARY.................................................................................................................................2
ANAYSIS OF COMPETITIVE ENVIRONMENT.................................................................................................2
PORTER’S FIVE FORCES............................................................................................................................3
Analysis of Value Chain............................................................................................................................5
Resource Analysis....................................................................................................................................5
Competency Analysis...............................................................................................................................6
SWOT ANALYSIS.......................................................................................................................................6
First Mover Advantage................................................................................................................................7
Amazon to maintain Challenges to stay as Market Leader..........................................................................7
Conclusion...................................................................................................................................................8
Bibliography................................................................................................................................................9

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INTRODUCTION
Jeff Bezos, founder of the company Amazon in the year 1994 with its head quarters located in
Seattle. The company was made an online portal in the year 1995. Amazon was renamed from
Cadabra; Inc. Amazon was named after the Amazon river which is the largest river in the world.
By the name they propose that the company is of bigger size with almost all products been sold.
Initially the company functioned like a book store selling books through online. The company
later diversified selling different products to stay ahead of the competitors. It started selling
computer softwares, DVD’s and CD’s, furniture etc. The company then created different
websites to capture the customers in countries like Germany, France, Canada, Japan and the
United Kingdom.

The company issued IPO in the year 1997, May 15 under the stock exchange NASDAQ through
which trading happened with the price of $18/share.

EXECUTIVE SUMMARY
This is a case about Amazon.com which portraits and gives an overview of the company’s
inventory management. This company came into existence when the founder of the company
Jeffery Preston Bezos realized the scope of the internet’s online trading. Amazon in the
beginning started selling books through online which later diversified into a mass online portal
dealing with almost all the products. This report contains the analysis of the company’s
competitive environment and the SWOT analysis of the company to understand. The company’s
first mover analysis was done to understand the competitive advantage.

ANAYSIS OF COMPETITIVE ENVIRONMENT

By analyzing the competitive environment, it is clear that Amazon’s technology keeps it way
ahead from its competitors. Constant innovation of technology helps the company to sustain as
the market leader among its customers. Amazon should keep concentrating on innovation of new
technologies to create opportunities for itself to sustain as a market leader. In this case, it is like
technology being the main resource of Amazon

As Amazon expands globally across different countries, it should be aware of all the government
laws and legal policies of the business. Actually laws might differ from one country to another

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unlike earlier when the laws where parallel in U.S.A, Japan etc. The main law that the Amazon
should be concerned is the cyber law.

Another fact to be considered is the growing population in almost all countries. With having
growing population, the market size actually grows for Amazon. It becomes a task for the
company to identify its customers. When considering the social and cultural aspects, there is an
increase in the number of people who has started using internet for their shopping. There is a
steady shift in people’s mind of using the online portal for shopping when considered earlier
stages of internet usage.

Amazon’s top 5 competitors

 Barnes & Noble, Inc

 eBay Inc
 Netflix Inc
 Wal-Mart stores Inc
 Borders group, Inc

Customer Focus

Amazon, since its existence has managed to capture and attract more customers from nearly 150
countries around the world. This forced the company Amazon to diversify its product line
providing the customers with different products to satisfy their needs. The low price strategy
followed by Amazon has proved to attract more customers towards it which has led to staying
ahead of the competitors. Understanding the fact that there is an increase in the usage of internet
everywhere, Amazon has a great opportunity to capture more customers in the market.

PORTER’S FIVE FORCES

 Threat of new entrants
 Bargaining power of buyers
 Bargaining powers of suppliers
 Threat of substitute products
 Rivalry among competitors

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 Threat of New Entrants

By analyzing the company Amazon.com, the threat of the new entrants is low for a good
reason that the company has a patent on its technology which protects it from being copied. It
could be easier said than done for the competitors to enter the industry as the company
Amazon.com holds a strong brand image. It is also mentioned in the case that Barnes and
Noble were streaked for copying the technology. Another reason for low threat of new
entrants could be the high price involved in setting up of similar information system.
 Bargaining power of Buyers
The bargaining power of buyers in Amazon.com is high because of the reason that the
customers have more than one source for purchase. By considering it with an example of the
company Amazon selling books, there are other competitors for the company like Barnes and
Noble, BookSite.com or BookSence.com by which a customer might purchase in any one of
these which offers the best deal. With this reason, the bargaining power of the buyers of
Amazon.com is high. This forces the company to work on its strategies and come up with the
best offer price.
 Bargaining power of Suppliers
By understanding a few facts, the bargaining power of the supplier is also high. Amazon,
selling some of its products lower than the market price ended up in a dispute among the
distributors and the company which resulted in objection of distributors from selling their
products directly to the company. Upon that Amazon was also not able to purchase electronic
items directly from the main distributors like Sony.

 Threat of Substitute Products

There is always a high threat of substitute product for Amazon.com as it is an online portal.
There are many physical stores which deal with the products sold by Amazon.com. Some
people find it easy to buy it from a store rather than buying it through online. With providing
best deal with services and prices of the products a store keeper could easily attract
customers.

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 Industry Analysis
Amazon faces a high level of rivalry in the industry as it has to face well established
competitors like the tangible book stores. These stores are well established in the industry by
having its strong brand acknowledgement among the customers. In this case these tangible
stores throw intense rivalry over Amazon.com. Amazon.com also faces strong competitive
rivalry in the online music sector also. A well established online portal for music CDNow
had to cultivate proactive measures when Amazon.com entered the music sector. CDNow
stood ahead as it created a great brand acknowledgement among customers. When
considering the online auction system in Amazon, it has to face rivalry from eBay.com.
When comparing Amazon with eBay, Amazon still lacks behind eBay in this sector.

Analysis of Value Chain

Through analyzing the value chain we can understand that inbound logistics which is a primary
activity of a company is reinforced by technology development which is a secondary activity of a
company. Through this the products or the services can be chosen to reach the customers with
having safe transactions. The process of the company’s marketing and its operations are held in
its infrastructure having with a growing number of 900,000 associate partners. Through its
infrastructure the company’s tax payments is reduced by the Seattle headquarters. Seattle
headquarters, having people to develop the technology will undergo a relatively low cost and
encouraging environment by closing down the inefficient warehouses in the case of storing and
delivering the products.

Resource Analysis

Amazon, being the first mover is all set to build the copyright of its company’s technology.
Amazon’s main resource can be said as its technology. The company protects its resource with
the copyright and also with constant innovation. So with Amazon holding its copyright for its
technology, it is difficult for both new entrants into the business as well as the existing
competitors to copy the technological model.

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Competency Analysis

The core competency of Amazon would be its strategic expansion. It is very difficult for the new
entrants to adopt the amount invested by Amazon for its technology. The technology used by
Amazon has no substitutes by having the first mover advantage. To conclude, we can say that the
company’s copyright for its technology is its competitive advantage.

SWOT ANALYSIS

Strengths

 Being ahead of all its competitors would be Amazon’s biggest strength. Having constant
innovation to its technology and also dealing with new products
 Contract with Prodigy Network which has around 20,000 databases of customers to
internet shopping
 Acquiring Internet Movie Data Base to capture movie and television sector
 Amazon has a brand acknowledgement with a customer base of 30 million
 The firms channel of distribution
 Low price strategy that Amazon follows

Weakness

 Customers losing trust after receiving false e-mails in the name of Amazon.com
 International sales figure of Amazon being lower than that of home sales figure which
proves that the company is not doing well overseas
 Lack of advertisements left customers unaware of certain schemes
 Amazon’s equity being lesser than its debt is understandable that any loss incurred by the
company will have a huge impact
 Amazon providing free shipping cost for its products sold when still a few products will
incur a high shipping cost
 New product diversification may involve risk of losing brand image it the product fails

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Opportunities

 Amazon can also expand to many other countries like India as they have now created a
brand acknowledgment and also been successful
 By reducing the International transaction tax rate with the help of the government,
Amazon can pull more customers towards it
 Ecommerce expansion in regions like Asia

Threats

 Providing free of shipment cost of the products sold to its customers might sometimes
end up incurring a loss as the shipping cost for a few products are high
 If the competitors innovation of technology is better, then it can also be considered as a
threat in the future
 The rise of problems from internet hackers
 World economy with low performance

First Mover Advantage

There will be a huge opportunity for a competitor in an industry if a company fails to adapt
to the changes like new technology or other innovations. A customer will not prefer
individual websites specific need. Customers prefer one portal through which they can
access all the products like Amazon. Hence Amazon attracts many competitors to the
industry. In the case of selling books, Amazon has been a second mover as there was an
early existence of Book.com way before 1992. By seeing the increase of popularity of online
usage among people, launched another book selling portal.

Amazon to maintain Challenges to stay as Market Leader

 The business strategies of Amazon is hard to imitate for the new entrants
 The pricing method of Amazon and the free shipment of the products sold is
another difficult aspect for the new players to adapt

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 Amazon will find difficulty in selling its products in a bulk with its low pricing
strategy
 Amazon will face challenges in tracking the technological changes every time
 Bonding with other organizations to capture the market and sustain in its position
 Heavy cost incurred in its search engine which was structured to hold the
customers from switching to other portals

Conclusion

By considering a few facts, I would conclude that Amazon will have greater opportunities in
the future. This is because of the reason that there is been a steady increase in the growing
population who uses internet for buying or selling of their products. Amazon by having its
copyright of the technological software it uses proves to be its competitive advantage.
Knowing Amazon having its first mover advantage, it needs constant innovation of its
technology which might incur a huge capital. We can understand that Amazon invests in
innovation of technology even when the company’s profit is less which is a good sign for the
company. Finally to conclude, constant innovation plans of the company Amazon will keep
them ahead of its competitors.

Initially Amazon struggled in making profits which can be explained with the reason like
the customers returning the products and the cost incurred with attempting to deliver more
than once. Though Amazon struggled for a few reasons, it still managed to maintain a huge
inventory in a well organized way. Amazon had to face orders delayed for the reason the
inventory placed at incorrect regions. But this later in the year 2002 was made better by
implementing innovative softwares.

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Bibliography
Amazon SWOT. (n.d.). Retrieved aug 31, 2010, from www.marketingteacher.com:
http://www.marketingteacher.com/swot/amazon-swot.html

E-Commerce Strategy - Amazon.com, Software Vendor. (2003, oct 15). Retrieved aug 31, 2010, from cio:
http://www.cio.com/article/29855/E_Commerce_Strategy_Amazon.com_Software_Vendor

Geoff Goldman, C. N. (2006). Strategy: Sustaining Competitive Advantage in a Globalised Context. cape
town: 2006 juta & co.ltd.

Hal P. Kirkwood, J. (n.d.). first mover andvantage. Retrieved sep 1, 2010, from enotes.com:
http://www.enotes.com/management-encyclopedia/first-mover-advantage

Katz, D. M. (2002, dec 31). First-Mover Advantage. Retrieved sep 1, 2010, from cfo:
http://www.cfo.com/article.cfm/3007674

SWOT Framework Analysis . (n.d.). Retrieved aug 31, 2010, from http://www.researchandmarkets.com:
http://www.researchandmarkets.com/reports/541176

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