Overview and Current Climate
The growth of technological innovations and their affordability in the modern society has enabled a lot of people to use laptops, smartphones, and tablets among other gadgets to access the internet. Business-people have taken advantage of this phenomenon to set up online shops. Amazon is one of these enterprises. It is a leading online retail shop in the world and offers an array of products to its customers. It allows customers to easily access and compare prices before making orders. Amazon also offers home delivery services to its online shoppers in various parts of the world. Over the years, Amazon has increased the number of products and services it offers and diversified to attract more customers. According to Kawai & Tagg (222), the corporation’s products are customer-based; meant to satisfy specific needs. It is vital to analyze the Amazon retail business to understand its competitiveness in the market to make forecasts and recommendations for the future.
The online sales business has been on the increase not only in the United States but also around the globe. This increase can be attributed to many reasons, such as convenience. E-commerce allows shoppers to compare the different products on offer and their prices before ordering. Laudon, Carol, Traver & Pearson (23-25) note that in the US, the retail online sales may surpass the $1 trillion mark by 2026. This means that more Americans are opting for online shopping rather than visiting the physical stores. The UK market has also registered growth in the e-commerce sector which has attracted the attention of retail outlets. Amazon models its business on the current technological advancements that permit people to choose what suits them at their comfort. The e-commerce industry also has other players who are doing very well, such as Walmart, Target, Macy’s, Best Buy, and Alibaba.
Walmart is currently Amazon’s biggest competitor in the U.S. it equally has multiple physical stores. The reasons behind Walmart venturing online are changes in the technological trends and the need for efficacy. An appropriately integrated combination of these two leads to increased revenues. Technological trends have turned the world into a global village. Firms like Walmart and Amazon have taken advantage of these improvements and offered an easy platform for potential customers to access a wide array of products. Moreover, e-commerce firms also offer delivery services in a bid to increase their efficacy.
Retail Model and Strategy
By 2015, the Amazon brand was already worth $170 billion; a huge success for the online retailer. Many retailers in the U.S. use brick-and-mortar outlets to make sales. However, Amazon focuses on e-commerce in order to reach its targeted customers. Its online revenue remains at an all-time high in the US market, in comparison to its competitors. E-commerce also enables firms like Amazon to advertise online hence reaching a wider market. One of the main strategies behind Amazon’s success is its tendency to focus on long-term objectives rather than the short-term goals. The company’s model rarely focuses on making quick profits but on creating innovation that customers trust. This facilitated its growth from a miniature business to a multinational corporation with a presence on five continents.
According to Bezos, the Amazon founder, their business model seeks to focus on products that do not change over time. Their technological advancements avoid situations where the company will have to change within a short time due to changing preferences and tastes. Therefore, Amazon’s main focus is selection, low prices, and fast delivery. Most customers look for these three factors when it comes to customer satisfaction. These three factors also have a very low probability of changing any time soon. Amazon focuses on opportunities for expansion rather than past failures. Several of its past projects have failed midway before materializing. At the beginning of doing business, the company made huge investments on warehouses in order to build offline stores; however, that strategy failed, leading to the focus on the online model that has become a huge success.
The online business requires customer satisfaction, without which, no sales can be made. The ability to offer a large selection of products to the customers as well as achieving personalized services has contributed to the improved customer satisfaction. Amazon invents and waits to study the purchasing trend before embarking on the individual need of the customers, who comprise the middle class and above. Speedy service and competitive prices are also some of the strategies that make Amazon successful. They avoid delays, whether in their web pages or when making deliveries.
Amazon is a brand worth hundreds of billions of dollars offering numerous services for the satisfaction of the customers. The company has maintained leadership by innovating and creating business models that seek to offer solutions to other business and the end users. To Amazon, competition is not their main focus. Their products and services seek to create customer satisfaction and loyalty rather than profits. Initially, Amazon became successful in book sales; however, it has been able to diversify into other areas like electronics, music, clothes, and toys, among others. As noted above, Amazon’s main strategy remains to innovate products and services geared towards customers’ long-term satisfaction. They do not invest in products and services that change within a short time. To them, satisfying the customer by providing a personalized service is the key, something that builds confidence.
Online businesses register a number of players who seek to control the market. As noted above, Walmart is Amazon’s main competitor, especially in the US market. However, Walmart, the retail industry, has a larger share of offline stores and purchases than Amazon. Walmart’s online business has not yet reached a peak level, although they have recently embarked on the online campaigns in a bid to establish their e-commerce. Other competitors include Target, Macy’s, Best Buy, and Alibaba. What makes Amazon stand out is the fact that it uses the online platform to conduct its business (Ross & Maija 12).
Amazon stands out in the retail business because of its robust online campaign that has worked to increase its followers. The online platform registers visits from millions of visitors each month, making the online retail model stand out in the market. Walmart, the main competitor has bigger revenues per annum because of its offline stores across the globe. The total revenues of this retailer are beyond $500 billion per annum, surpassing what Amazon makes during the same period. This explains the choice by the Amazon leadership to narrow its focus to what they know best, online retail business. Amazon’s online business makes better revenues than Walmart because of the diversification of the products and services they offer.
Diversification is an important strategy towards the growth of any business enterprise. Amazon stays on top of the online retail business because of the decision by the leadership to diversify its products and services. Amazon Prime is a product that offers a free two-day shipping to those customers who are eligible. Members who subscribe to this product also enjoy free offline video streaming in order to attract attention and loyalty. Other products include Amazon video and cloud drive that allow customers to purchase or rent digital movies, having the ability to store their personal information in the cloud (Millward 28). Other than the products and services, Amazon has a number of subsidiaries that help stay on top of the competition. Some of these subsidiaries include Audible, Goodreads, Brilliance Audio, Woot, Shelfari and Box Office Mojo, among others.
What stands out, when it comes to Amazon’s competitive, lies in the aggressive online expansion drive at the expense of having better revenue. The company offers services and products that do not have higher profit margins. It seems that Amazon relies on their ability to make customers happy and loyal, working every day to come up with customized services to the customers. Customer reviews and studies indicate that the majority of online shoppers believe that Amazon provides accurate information on products making them likely to purchase from the same outlet. However, the retail business has already acquired Whole Foods, a strong brand with numerous private labels in a bid to diversify into offline business.
Retail Market Strategy
The target audience for the Amazon products and services revolve around the technologically savvy younger generation who looks for comfort and style. The retail shop understands that the bigger audience is on the internet. Such an audience has no geographical boundaries; can be reached in many parts of the world using the internet. The different services and products work towards reaching out to the varied audiences. Currently, Amazon’s image is good, as per the reviews by the customers in all parts of the world. Most customers prefer this online shop because of the competitive prices and accurate information it offers. The free services, as well as trials, also work to attract customers to buy the products, unlike the competitors who provide services for profit.
As stated from the beginning of this analysis, technology is at the center of Amazon’s retail strategy. Amazon Web Services (AWS) provide a platform where companies and other businesses can display their services or products to the potential customers at their comfort. The increase in the use and supply of smartphones, personal computers and tablets have helped increase the consumer base for the Amazon products and services. This means that their global presence is good. As much as they do not have physical retail outlets, the internet has made it easy for the growth of their business across the globe (Mind Commerce 15).
Advertising works towards informing potential customers on products and services on offer. Amazon spends a substantial amount of their revenue on offline and online advertising. Amazon’s online advertising is more robust than offline and is mainly through online pay per click advertising on Google. This method helps in directing people to their specific sites. Amazon also pays for search result on the Google, going further to pay for each visitor to Amazon.com. E-mail marketing is another method where the company seeks permission to send specific promotion information with details of products and services. Social networking sites help in reaching out to very many people. Amazon uses sites like Facebook and affiliate forums like good reads to reach potential customers. 90% of Amazon’s budget goes to the pay per click advertisings as well as SEO (Denise 12).
Offline advertising campaign includes the use of mainstream media ads in TV and radio. They also sponsor events that help customers experience and interact with the products in places like malls. Other promotional advertisement takes the form of having online campaigns and rewards to certain customers who achieve a certain target.
It seems that Amazon’s retail strategy works better as seen in the number of potential customers who visit their online stores (Nielsen 8). Their competition also has their own strategies; however, Amazon seems to have a long-term target that seeks to create a bigger customer base, as well as their loyalty to the company. Of course, this strategy has worked towards lowering the revenue because most of the products and services they offer are cheap and do not bring higher profits. Finally, their plan seems to work due to the loyal customers who prefer Amazon products to the competitors’.
Despite the current competition, Amazon comes out as a strong retail outlet because of the loyal customers who have been part of the business while it was still a bookstore. The following is the SWOT analysis for the retail business:
Amazon’s strong background as a bookstore makes it a favorite for many customers. The store has diversified into other products like clothes, electronics, games, toys, homeware, among others.
Customer-centered services: the company has a number of processes that help collect information on the purchase behavior of its customers. With this, the company offers services as per the tastes and preferences of customers. This also helps the company offer items or bundles to the potential customers. Most of the purchasers are repeat buyers.
Efficiency in deliveries: Amazon has efficient delivery networks that help in the distribution of goods to the remotest places. In certain places, the company offers free deliveries to the satisfaction of the customers (Nielsen 4). The ability of the company to work with local networks has helped in competition with local retailers who offer similar products and services.
Acquisitions: the company has acquired other brands like Zappos.com, IMBD.com etc. has worked towards improving the revenue, improving the online business.
Diminishing profit margins: the need to build an extensive network for deliveries in all parts of the global market and the price wars has led to the shrinking of margins for the company. In some markets like India, the company has registered losses in the past.
Tax issues: the company has had problems with tax collectors in major markets like the US and UK. Such problems lead to negative publicity and may likely lead to the reduction in revenue as customers keep away.
Increasing debt: Amazon has to spend a lot of revenue in order to establish themselves in the developing markets. In most cases, the struggling markets affect the overall revenue of the company, leading to debts.
Expansion: Amazon’s global expansion, especially towards the emerging markets like Asia is an opportunity for the business such markets do not have serious competition. The company stands to gain in revenue with time.
Acquisitions: the company has opportunities in the acquisitions of other chains of business because it helps in beating competition, especially within similar products. The acquisition helps in the diversification of the services and products and dodging competition.
Physical stores: there are opportunities in opening physical stores outside of the US market.
Government regulations: many developing countries do have clear rules and regulations on the e-commerce brand retailers.
Local competitors: emerging local competition work to the disadvantage of the major market shareholder like Amazon. The small local companies work towards a piece of the market share.
Looking to the Future
This analysis indicates that Amazon is doing well in the current market. All the strategies seem to be working to its advantage. As it stands, it seems that the retail shop majorly relies on the online shopping, an area they seem to have mastered. However, there is a need for more diversification in a bid to boost revenue. It is encouraging that the company has started acquiring offline stores. Such efforts will help the company make a profitable integration between offline and online sales. As much as the online sales purchases and sales are doing well, new entrants seem to be fighting for the market share. Therefore, the leadership must work towards diversification to dodge the increasing competition. Offline line shops will also help in ensuring increased revenue in all parts of the world. Otherwise, the strategy towards building a wide and loyal customer base is an advantage that the company must keep up to.
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