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Amazon's Strategic Positioning

Paper Type: Free Essay Subject: Business
Wordcount: 5405 words Published: 5th Dec 2017

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Executive Summary

This report reviews Amazon's strategic positioning in the E-commerce segment in the recent period and how it (the company) has been able to maintain competitive advantage by constantly evolving itself in the dynamic market. It also reflects how Amazon can continue to grow in constant endeavour to achieve its mission and vision of being "earth's most customer centric company" (Analysis of this statement would help the 'board understand how Amazon measures up and h they as a 'board' see the progress of the company'. The recent financial crisis has weakened the retail sector but Amazon has succeeded in maintaining growth in its 3rd quarter of 2009. The result of the financial analysis indicates that Amazon is in a good financial position, though these strong figures are partly based on the good credit terms obtained from Amazon's suppliers (so a risk? How great etc).

We further suggest strategies for the short, medium and long term which focuses on consolidating operations, market research analysis (for what?) and foray (drive/push/entre/test) into the emerging markets to evolve as global leader in its niche business area respectively (explain more clearly@evolve' & 'niche').

The report concludes by exploring Amazon's future plans in terms of products, markets and strategy.

Directors Reports


Amazon has recorded total revenue of $15billion in first three quarters of 2009, which is 20% higher than total revenue during the same period in 2008. In 2009 (why, with consumer demand down has the company opened up new markets, taken market share from competitors, increased its penetration of the existing markets etc?, the gross profit has increased from 22.6% in 2008 to 23.7%. Our increased sales and operational efficiency have helped us to maintain the profit margin (so savings of sale or margin contribution?) although there is an increase in operational costs (margins then were higher, diluted by increased operating costs.? Our operating margin has been stable at 4.4% over the past years showing a consistency in operations. (So the increased sales did not lead to improved operating income?)

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Based on our previous year's performance and experience, we project total revenue of $8.5billion in the last quarter of 2009. This will lead to total revenue of $23.5 billion for 2009, which will be an increase of 22.6% from year 2008. The steady increase in yearly revenue primarily reflects our market competitiveness. Our projection in the increase of sales by 22.6% in 2009 is based on the global economic slowdown and changes in customer purchasing preferences. Meanwhile, the basis of our estimate for the current quarter is based on our previous trend wherein sales increased during the Christmas season and low price offering. Based on our previous sales records, our last quarter sales were 35% to 37% of total revenue.

The inventory turnover has improved (explain 11.5 from 13 is a decrease?) by 12% in trailing twelve months of September 2009 to 11.5 from 13.0 in 2006 and 2007. The asset turnover has increased slightly in trailing twelve months of September 2009 to 2.79 from 2.31 and 2.29 in 2008 and 2007. This reflects our improved efficiency in inventory and asset management.

Our current ratio and acid test ratio have improved marginally to 1.40 and 1.05 from 1.30 and 1.00 respectively in 2008.These ratios augment confidence of our investors and suppliers on us in this global credit crunch where cash or liquidity is considered vital for continuing operation. We have been able to lower our debts through regular repayments. As at 30th September 2009, our debt to equity ratio is 0.03. This is a considerable improvement from debt to equity ratio of 0.18 and 1.09 in 2008 and 2007 respectively.

Our account payable days were 62 and 57 for 2008 and 2007 respectively. Our account receivables day of 17 days is low because quick settlement of customer payments made through credit/debit cards.

Our principal source of fund is generated from operations and cash/cash equivalent received from customers, suppliers and sellers. The cash/cash equivalent and marketable securities were $3.7billion and $3.1billion in 2008 and 2007.

In terms of market performance, our share price drop to $43.20 in October 2009 and subsequently went up steadily to $134.03 as at 25th November 2009. The share value has increased by more than $90 after the announcement of our 3rd quarter results. The appreciation of share prices reflects share holders trust on Amazon, and it will further help us in Zappos.com acquisition.

Sales and Marketing


Amazon's sales are generated from media, electronics, other general merchandise and non-retail activities such as other seller sites, co-branded credit card agreements and miscellaneous marketing and promotional activities.


We direct customers to our websites through a number of targeted online marketing channels such as our Associates program, sponsored search, portal advertising, e-mail campaigns and other initiatives. The marketing expenses are largely variable based on growth and changes in ex. rates.

Our marketing expenses increased from $344 million to $482million in 2007 and 2008 respectively due to increased spending in variable online marketing channels, such as our Associates program and sponsored search programs. By September 2009, we had incurred $406million on marketing, a 30% increase from $313million in September 2008. (Is the 40% year of year run rate slowing?)

The recent launch of Amazon Mobile Payment in October 2009 has increased the choices of mode of payment for the customers and it will be the stepping stone for the company to enter markets where mobile penetration is high but banking infrastructure is developing. (How reliable is the method?)

In order to boost sales, the company strategy needs to be aligned with the growth prospects in 'E Commerce' in emerging markets. Tapping booming market segments in 'on line gaming' and 'Travel sector' in India and 'on line gaming' in China seems a viable option in this direction. (What research statistics/data do we have to support this market entre?)

We will continue to rely on customer loyalty and innovative advertising as well as other platforms available to us. (To do what?)


We create value for our customers by offering satisfactory (or superior) services. This is done by managing retail operations with efficient use of technology. Operational efficiency is a basis of strength for Amazon and supports the management to maintain our competitive advantage and enhance corporate performance. (Will we become more efficient?) Our principal sources of liquidity are cash flows generated from operations. In that regard, one way of reducing operational and performance variation, is to implement a uniform production platform increasing process efficiency. (Is this part of our planned strategy?)

As can be gleaned from our third quarter report for fiscal 2009, compared to the same period in the prior year, operating expenses have increased. This is due in part to a settlement to Toysrus LLC for $51million and increase in other costs. There are a number of pending lawsuits against Amazon that must be factored in our decisions. (Is operation efficiencies are to be improved then reducing law suites is a way forward?)

As our operations are segmented between North America and International, there are a number of issues we are uncertain about, but actual results could differ. These concerns are: fluctuations in foreign exchange rates, (do we hedge as a practice?) changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce.

Information Systems

Future Development

Amazon will continue to improve the IT services related the e-commerce and supply chain management. The areas of future development include:

  • Amazon Elastic Compute Cloud

Amazon Elastic Compute Cloud (Amazon EC2) is a web service that provides resizable compute capacity in the cloud. It is designed to make web-scale computing easier for developers.

  • Amazon S3 Storage

Amazon S3 provides a simple web services interface that can be used to store and retrieve any amount of data, at any time, from anywhere on the web. It gives any developer access to the same highly scalable, reliable, fast, inexpensive data storage infrastructure that Amazon uses to run its own global network of web sites. The service aims to maximize benefits of scale and to pass those benefits on to developers.

  • Amazon Cloud Front

Amazon Cloud Front is a web service for content delivery. It integrates with other Amazon Web Services to give developers and businesses an easy way to distribute content to end users with low latency, high data transfer speeds, and no commitments.

  • Amazon Fulfilment Web Service

Amazon Fulfilment Web Service (Amazon FWS) allows merchants to access Amazon's world-class fulfilment capabilities through a simple web services interface. Merchants can programmatically send order information to Amazon with instructions to physically fulfil customer orders on their behalf.

Amazon continues to develop the IT systems related to the support of the Kindle e-book reader. In particular the online Kindle Book Store and the related "Whisper net'" wireless distribution network.

Kindle issues

An Overview

Amazon Kindle is a software and hardware platform developed by Amazon.com subsidiary Lab126 for rendering and displaying e-books and other digital media. Three hardware devices, known as "Kindle", "Kindle 2," and "Kindle DX" (Figure 1) support this platform, as does an iPhone application called "Kindle for iPhone".

The Kindle hardware devices use E Ink brand electronic paper displays, and are able to download content over Amazon Whispernet using the Sprint EVDO in the USA or, for newer Kindle 2 devices, AT&T's network internationally.

Kindle Sales and Earnings

We are yet to make profit on Kindle. The Kindle hardware is based on a cut-down Linux/PC configuration. As you can see from Figure 2.4 the teardown cost for the Kindle 2 have been estimated to be $185 per unit. This represents approximately 50% of the present sale cost of $400. Therefore, the margin per Kindle must be slim once development, manufacture, shipping and promotions costs have been factored into the unit price.

The Future of E-Book Readers: The Potential Market

A number of analysts have predicted a large market for e-book readers. Forrester research has predicted the potential market (Figure 2.5) based on the sales of similar products, such as IPods and mobile phones.

If Forrester's predictions are correct then there is a large potential market.

Threats to Kindle

The main factor in determining if Kindle will be a successful is content. There are number of free books that have elapsed copyrights, which are available for the Kindle and other e-book readers. However, the main source of revenue for the e-book market is predicted not to be books but newspapers, magazines and journals. These limited life documents would be transmitted directly to the reader via the mobile phone network: the Kindle DX, Sony's e-reader and Barns & Noble's Nook have this functionality. (Google's recent announcement on e-books? Do newspapers and similar already offer some for of e-news through their web portals?)

Sony has been creating alliances with a number of publishers to produce content for its e-reader. The highest profile publisher is Rupert Murdoch's News Corp that prints large number of leading newspapers and magazines. This is the main threat to the success of Kindle. This situation has similarities to the format battle between HD DVD and Blue Ray DVD formats. Sony won this format battle by forming alliances with the Hollywood studios. These studios agreed to produce content solely for the Blue Ray format.

Human Resources and Administration

For 2008 fiscal year, our payroll and administration expenses were $279million compared to $235 million in 2007 and the increase was primarily due to increase in staff recruitments, payroll related expenses and professional services fees.

In reference to our employees, staff complement increased by 22%, from 17,000 in 2007 to 20,700 in 2008. At present, there have been no redundancy exercises made in the company and we are focusing on retaining employees in order for them to remain engaged and loyal to the business in the long-term. (Have we increased manning in 9m to 30/09/09, over and above seasonal increases?)

As the company's main revenue comes from the 4th quarter, we expect to increase the volume of temporary employees in order to meet customer's orders. We will continue to supplement all our teams with additional staffing and will continue to add some capacity particularly in the international region to prepare ourselves to serve our customers during our busiest time of the year.

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In 2008, Amazon UK was accused of treating staff harshly. However, this has been hyped by the media and till date there is no accusation of breaching the law. (There is a difference between breaching the law and treating staff harshly - are we sure of our position?) We greatly appreciate and reward our employees with a basic wage complemented by performance related pay. Meanwhile, employees are represented by a democratically elected employee forum who meets regularly with senior management of which any matters will be discussed accordingly. (Is this window dressing or does the method work, how is it implemented globally?)

Business Development

We recently acquired the online shoe retail shop, Zappos.com for the sum of $928million and $40million during the year for acquisition of Yieldex, Lexcycle Inc., Booktour, Foodista, Talk Market Inc, and Snap Tell Inc. These acquisitions will help us maintain the sales growth rate in this current crisis. (Has there been analysis to support these statements about growth rates?)

Our international activities are significant to our revenues and profits, and we plan to further expand internationally in the long term due to the recent economic situation. Our international expansion will be focused on the BRIC countries specifically China and India as the markets are still untapped and will be good for us. Based on the little experience in the future market segments, proper research and risk analysis have to be done to enhance our?


Amazon has always ensured that we comply with government and other regulatory authority policies in the different countries that we operate in. We are involved in claims, proceedings and litigation dating back from 2001 to date. We currently have fifteen patent infringement cases against us pending in various courts with ten claims filed in 2009. We were acquitted in our lawsuits with Actus and Cordance in September 2009. (Is the board worried about this level of litigation?)

In order to reduce the volume of lawsuits against us, we have decided to:

  1. Conduct a proper research of existing technological platforms before embarking on the usage and deployment of the platform.
  2. Where the already platform already exists, we will seek permission or leave of the rights and pay fees for the usage.
  3. We will also embark on developing our own technological platforms.

We are also involved in the issues relating to the avoidance of sales tax in some states in the country. These states include New York, North Carolina and Hawaii. New York Legislative has passed a bill compelling Amazon to pay sales tax and other states are hoping to follow soon. Financial impact analysis of this legislation? Are disputed sales taxes reserved for in the B/S?

Supply Chain Management

In Amazon, the inventory policies drive the operating expenses and working capital requirements. Items are shipped as and when customer orders are received through the central servers. Our ability to meet customers' demands with 'precision timing' and accuracy has been a source of competitive advantage and customer loyalty. We currently have fulfilment centres (how many and located where?) for stocking the merchandise.

We aim to improve our delivery time to gain more advantage, loyalty and long term alliances by introducing the cross docking concept where we identify suppliers who can readily agree to facilitate unique packaging facility at their locations. The financial burden of this arrangement will be borne by Amazon but the cost of packaging will be offset by the savings generated from reducing the inventory. What is the model for this? Is there an upside supplier cost, now or at some time in future? Section 4.1.1 bullet 1 lists $20m saving or 1.5%

We hope to use this to reduce the inventory holding costs, shipping costs, operational costs as well the working capital requirement for the supply chain function.

Strategic Analysis

Internal and External Analysis

Amazon's brand has established high levels of recognition around the world, making it the first port-of-call for much of the rapidly expanding internet retailing consumer base, with the reputation of offering a wide choice of products and services. To this end, detailed analysis of the following will be undertaken:

  1. Amazon's internal capabilities and resources (see appendix - SWOT Analysis and VRINE Analysis)
  2. Weighing our competitive advantage (see appendix - External Analysis (Porter's Five Forces).
  3. To expand in China (see appendix - E-Commerce in China and PESTLE Analysis)

Strategic Position

Amazon has been able to maintain sustainable competitive advantage based on three operational strategies. These are low cost-leadership, customer differentiation and focus strategies.

Low cost-leadership is pursued by Amazon by differentiating itself primarily on the basis of price. We believe that offering low prices to our customers is fundamental to our future success. We seek to partially mitigate the costs of lowering prices over time through achieving higher sales volumes, negotiating better terms with our suppliers, and achieving better operating efficiencies. Amazon makes sure that it offers the same quality products as other companies at a considerably cheaper price. Analysis of competitors? Are there services we (can/could) offer using our infrastructure that could command a premium price?

With our customer differentiation strategy, Amazon provides current and prospective customers with differentiation through design, quality or convenience by selecting a strategy that is different among the competitors.

The focus strategy takes one of the two other strategies and applies it to a niche within the market Based on this, Amazon focuses on outstanding customer service as a niche but not the whole market because each niche has its own demand and requirement. Expand?

Recommended Strategies

Survival through Operational Efficiency

The recent financial crisis and Amazon's financial performance in recent years has shown that we have to optimally utilize organisational resources hence to be in better position to handle crisis situation and hence we propose the following:

  • Reduce Operational Costs

Sales are high but the costs associated with the sales have ranged between 75% -80% of sales in recent years. In order to be more efficient in our operations, we propose to cut the expenditure by 2 % in the following:

  1. Reducing cost in inventory by usage of cross docking by which we project to save $20million i.e. 1.5 % of the fulfilment? cost by the next fiscal.
  2. Research & Development cost projected to be cut by $50million which 5 % of the present budget. How?
  3. Marketing budget projected to be slashed by $10 million. Impact?
  4. Put a hold on diversification and acquisitions. A review of existing alliances, diversifications and acquisitions should be done to determine the non-profitable business and decisions should be made about the appropriate strategy to be considered. The review has not been done before?

Legal Dispute Settlement

The sum of $500million has been set aside to settle the lawsuits pending the court judgements. Analysis needed why we have so many law suites, is this now part of our culture and that we ignore risks in the belief we are smart etc?

Improve Kindle Sales

It is clear that the e-reader market is embryonic and has great potential. For the Kindle to survive, Amazon has to adopt a similar strategy to that of Sony, which is to develop alliances with content providers. Google's recent announcement?

We can consider cutting Kindle prices based on increase in sales in the future leading to economies of scale which can help boost our profit margin. (What is the model for this?)

If this can not be achieved, in the long-term, should consider selling the Kindle design and patents rights to a third party who has a greater expertise in hardware development. F/A?

Short Term (1-3 years) - Expansion to China


To attain a market share of 20-30% of Chinese internet retailing sector. How?

Target Company for acquisitions

Sohu.com Inc

Sohu is a China based internet media company providing a network of web-properties and community based web 2.0 products which offer an array of choices regarding information, entertainment and communication to the Sohu user community. Sohu's products and services are advertising, aggregated content, e-commerce, communication and community tools, internet access and services, search engines, sponsored search, web-properties, wireless communication, on-line games. (Might this company be in the process of dressing up their performance to attract a buyer?)

Price of Acquisitions

The ultimate purchase price will depend on a number of specific factors, including the target's current market value, its intrinsic value, and the value to be gained from any potential synergies between the target and buyer. Approximate costs of acquisitions can vary from $700million. To what?

Potential Obstacles and Challenges

  1. Small number of credit card users - 75 million credit cards in circulation by 2007.
  2. Payment systems are now safer - no longer a technical problem, but a problem of customer confidence.
  3. E-commerce logistics:
  • Size and vast distances in China - delivery for most companies limited to major metropolitan areas using couriers Cost as a % of sale price - compare with other locations?
  • High delivery cost due to the small scale of some logistics enterprises
  1. Over 70% of all purchases in the B2C market are paid cash-on-delivery.
  2. Over 70% of all purchases in the B2C market are paid cash-on-delivery Duplication of point 4?
  3. Buying online is a dramatic change from conventional shopping practices:
  • Consumers in China still prefer to look over the goods, determine their quality, and then, if satisfied, pay in cash. Probably a model which existed in west in earlier years when discretionary spending was limited?
  • On-line commerce, in comparison, is an alien experience that only increases risk.
  1. Kindle clone - $190. Define more clearly?

Risk Factors

  1. Intense competition.
  2. Expansion into new products, services, technologies and geographic regions are subjects to additional business, legal, financial and competitive risks.
  3. Unsuccessful in efforts to expand into international market segments.
  4. Foreign exchange risk. Hedge?
  5. Payments related risks. Credit cards?

SWOT Analysis


  1. Largest e-retailer with lion's share of the e-commerce market.
  2. Strong brand position and brand associations.
  3. Customer Relationship Management (CRM) and Information Technology (IT) support Amazon's business strategy.
  4. Amazon is a huge global brand. It is recognisable for two main reasons. It was one of the original dotcoms, and over the last decade it has developed a customer base of around 30 million people.
  5. Highly effective advertising and marketing.
  6. Effective use of technology and partnerships.
  7. Recent positive cash flow.


  1. Loss of focus on core products.
  2. Weak economy which could lead to low sales.
  3. High advertising and marketing costs due to no brick-and-mortar presence.


  1. Selling of developed technologies.
  2. Extension of brands into new areas.
  3. International expansion specifically India and China and other emerging markets.
  4. Opportunities with non-competitive businesses for mutual benefit.


  1. Unexpected changes in regulatory requirements both in the U.S. and abroad.
  2. Legal Issues in patent infringement: 15 court cases.
  3. International issues - export and import restrictions, tariffs and other trade barriers, fluctuations in currency rates, political instability, longer payment cycles, adverse tax consequences

External Analysis - Porter's Five Forces

Threat of new entrant


The cost involved in setting up an online bookstore is low and this poses a threat. With the right resources and knowledge, a new entrant could set up a similar website to compete with Amazon.


Amazon's technology platform and knowledge might make it difficult for entrants to come in and compete as the costs and experience involved might be high.

Brand Recognition and customer loyalty may also make it difficult for a new entrant to compete

Bargaining power of supplier


Bargaining power of supplier is relatively high in their electronic business sector. Amazon's Low Cost strategy has made it difficult for it to buy electronic product directly from the main distributors such as Sony, Panasonic and Pioneer.


However, bargaining power of supplier in Amazon's online book sector is relatively medium. Their power is medium as Amazon.com is dependent on Publishers for its supply.

Threat of product substitute


Threat of product substitute is very high in Amazon.com online business. Physical bookstores have an established brand name in their brick-and-mortar business and customers might not be comfortable buying books online. A competitor that might be able to offer better services and prices might be able to substitute Amazon's products. However, Amazon's One-click shopping might be able to reduce the threat.

Industry rivalry


As the result of huge and wide presence of competitors for the book business, Amazon.com faces high industry rivalry in their online book business. Established bookstores have the advantage of a larger and well established customer base, brand recognition, awareness and a wider selection of books. The entry of established bookstore into the online arena has further increase industry rivalry in this sector.

Amazon.com also faces intense rivalry from their online music sector. For example, Amazon's entry into the online music market has caused CD-Now to take steps in reduce Amazon's threat in the sector. CD-Now has more advantage because they are well established and has more brand recognition in comparison to Amazon.com.

E-Commerce In China

Reason for expansion

  • One of the fastest developing countries in the world.
  • Leading and most reliable emerging market.
  • World largest foreign direct investment (FDI) destination country since 2002.
  • Market realization from potentiality due to recent well-ordered economy development, personnel disposable income increasing, infrastructure and transportation investment, rural economy development, speeding-up of foreign invested retailers in China.

Market overview

Transaction volumes of online retail in the country reached $18.8 billion in 2008, up 129% from 2007 according to iResearch, a Chinese internet research company. The market is predicted to reach almost $35 billion by the end of 2009 and offers huge potential.

  • The number of online shoppers rose against the economic crisis by nearly 14 million from 74 million to 87.88 million.
  • One out of four Chinese Internet users shops online, while two out of three Internet users in countries with high Internet Penetration like Europe, America and Korea are online shoppers.
  • China's potential of online shopping is yet to be released.
  • Additionally, the government has attached great importance to e-commerce's stimulus to the economy, and has released a series of policies to regularize and guide e-commerce development.
  • Industry e-commerce also grew vigorously, with more e-commerce platforms emerging and more and more farsighted traditional enterprises setting out for e-commerce.
  • Against the general background, e-commerce is expected to maintain fast growth in the coming years.

PESTEL Analysis for China


  • Single party leadership with consistent policies.
  • Unique socio - economic - political model centrally planned economy to a more market-oriented version with a rapidly growing private sector.
  • Good relations with the US, Free Trade agreement with ASEAN (by 2010).
  • Has been able to maintain a stable growth rate of 7-8% in the last few years. Inflation is between 4-5 %.
  • Government focus on equitable growth thru liberalization policies by building good relationship with other countries which lead to a growth in its trade.
  • Have good road, railway, air and shipping links to support the business activities.


  • Maintained strong economic growth over the years, 2003-2008, average GDP growth of 10.3% due to capital inflows, low real-interest rates and free market economy.
  • Unemployment rate is high due to rural-urban shift. Transition shift from agricultural to industrialized country of which the service sector provides secure wages.
  • The reformed IT and telecom policies and focused initiatives for the development of core technologies showcase Chinese plans to build its domestic prowess. By 2020, China will invest around 2.5% of its GDP in R&D.
  • China also wants to raise the contribution of technology to economic growth and limit its dependence on imported technologies. The country has also emerged as one of the main hubs for investments in R&D, IT and ICT services.

Socio Cultural

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