Amazon.com was founded by Jeff Bezos who was a computer science, as well
as graduate of electrical engineering from Princeton University. Though
he did not know much about internet, he came across some statistics
showing that the internet was growing at 2300%. Equipped with this
information, he decided to venture into e-commerce. The company started
with book selling but had since grown to selling products such as
cookware, toys and hardware. Since then, Amazon.com became the company
that is most closely tied with the e-commerce phenomenon. The purpose of
this essay is to evaluate how Amazon.com operates.
The success of Amazon.com can be attributed to the approach that the
company used in developing its online store. The company did not do as
other entrepreneurs did. They neither built virtual replicas of the
physical stores nor did they orient users spatially. The talented crew
understood that information had to be organized thoughtfully. They
started with a database of books in print and kept adding new
information to it (Schepp & Schepp, 2009). The company also introduced
new ways to enhance the shopping experience. One of their innovations
was one One-click shopping which was aimed at reducing the transactional
burden on customers. The move also ensured that the company could
remember all the relevant information about the customer. The company
further obtained a patent on One-click shopping and stalled its used by
its rivals (Saunders, 2001)
The company’s second innovation was ‘Product Review Information’.
They provide reviews for all their products including books, editorial
reviews and magazines. A rating figure is available to make the customer
choose whether to read or not depending on the figure. Amazon.com also
groups their items that they send to particular postal codes and those
that they order from each domain. They aggregate the data collected and
apply an algorithm in order to get a list showing bestseller items that
are more popular with each group. This innovation was aimed at enabling
customers to learn about books being read by rival firms or scientists.
The purchase circles are either updated on a weekly or monthly basis
depending on their size (Shanahan, 2007)
The company innovated a way to keep their customers updated. Customers
can get email alerts when a new book is available before the public
knows. They also recommend books to their customers by using
collaborative filtering. This is made possible by the fact that they are
able to remember the customers’ details when they visit their website.
If a user picks a book, other books are recommended that may be of
interest to the user. This move is aimed at increasing the company’s
sales (Reeser, 2011)
Amazon.com formulated a wish list where individuals can create a list of
items they wish to acquire. The list is accessible to the whole world
and the items requested are sent to the respective customers. The
website has a special page that consists of recently viewed portions of
the site. This makes it easier for customers who want to recheck the
information earlier viewed. All the innovations of Amazon.com were aimed
at manifesting its leadership role (Sherman, 2001)
The growth and development of Amazon Company can be attributed to the
technological innovation and advancement. Management of the company has
invested, in the field of research and development to ensure
customers’ needs are satisfied. There has been a growth in the
selection of products platform. This has increased the revenues of the
company and placed at a competitive advantage (Schmitz, 2005).
Amazon.com has changed the book publishing industry in a number of ways
in order to maximize on profits. Book return rates which consume about
$100 were reduced from 30% to 3%. They also developed an efficient
supply network which was aimed at saving over $2 billion. All these
moves exercised by the company gave it an opportunity to generate huge
profits. The company mainly focused on top sellers and quick moving
products thus making quick sales and higher returns. It makes money from
Zshops by listing items, charging merchandising fee and closing fees
when an item sells. Since its invention, the company has continued to
grow consistently. It sells to over 150 countries. They are able to gain
profits due to their relatively low prices and other factors such as
favourable exchange rates, better inventory management and improvements
in their operations (Robinson, 2010).
However, the company had incurred losses between 1997 and 1999. The
shareholders had accumulated a deficit of over $1.4 billion. It was
caused by high marketing expenses. The company thus reduced, on their
marketing strategies to recover the lost money. They had also invested
in a number of online retailing companies which did not pay off. The
company introduced expensive technologies on their website, which
increased their operating costs. It would have been better if they added
fewer features rather than the path it took. In the year 2012,
Amazon.com shipping losses had amounted to almost $3 billion, which was
5% of its sales. The company has a profit margin of -0.15%. The losses
that the company incurs can b attributed to free shipping and low prices
for their items.
The company has greatly invested in its clients through prices and
promotional programs as compared to its competitors. Amazon offers
customers the lowest prices as well as shipping services to all the
customers who are abroad (Mennen, 2010). Customers are also encouraged
to have a company’s membership card so as to enjoy all the available
offers. This improves the effectiveness and efficiency of the company
and thus results to improved revenues. Another area of competitive edge
for Amazon is a timely service to all the clients regardless of their
location on the globe. Customers’ orders are handled with care and
efficiency by the staff of Amazon (Mennen, 2010). Branding is also
another area of competitive edge for the company.
The mobile commerce strategy applied by Amazon increases its customer
base thus sales increase. There also the personalization of the process
of buying and selling where a customer gets a personal contact. Amazon
Company also gains competitive advantage over the competitors and also
the operations in the stores are run effectively and efficiently
(Mennen, 2010). Customers are able to make their purchases online with
the convenience. This saves customers time and resources. There is also
improved relationship leading to personalized services (Mennen, 2010)
Over the past years, Amazon.com has incurred losses in their operations.
In the year 2012, net sales increased by 34% to 13.2 billion USD as
compared to 9.9 billion USD in 2011. Operating cash flow went up with
1%. Free cash flow decreased by 40%, as well as operating income
decreased from 322 million USD to 192 million USD. Net income also went
down to 130 million USD, which was 35% decrease. According to Nasqad,
the share price stood at $369.17 on 15th of November 2013. It has a
market volume of 4,494,773 shares and an average market share of
2,678,327 shares as on the share price day. The share price percentage
change on the same day was $1.77 which is equivalent to 0.48% change in
the market. The 52 week share report indicated a high of $373.90 and a
low of $218.18. Daily share report indicated a high of $372.90 and a low
of $365.55. All the financial data are from the company’s website
under the portal of financials (Gosnell, 2005).
As compared to their competitors, Amazon.com has a high number
outstanding shares and price per shares. About 60% of US citizens are
aware of Amazon.com thus making it popular. The company has a low
customer acquisition cost and a customer retention rate of 72% making it
enjoy a competitive advantage over its competitors. The high customer
retention rate has a significant effect on the customer base. The
company succeeds in financing its working capital with cash flow from
suppliers by maintaining a positive gap in its finance cycle. Amazon.com
maintains a high fixed asset figure which helps in increasing market
capitalization (Brandt, 2011).
Amazon.com has well laid strategies, tools and techniques to improve its
operations. First, it puts effort in making its customers happy, which
is the first step towards increasing revenues and getting referrals. It
ensured that the customer understood the market well in order to gain
their confidence. The company also used a lot of money to build the most
valuable brand on the web which was attractive to customers. It invested
in innovative technology thus building loyalty among its customers and
creating a barrier to entry. It invested in selling points such as
Supply Chain Optimization (i2), Net Perceptions and All Product Search.
All these points were integrated into a virtuous cycle for dynamic
commerce. The company was committed to fulfilling the needs of its
customers. To attain this, it had deep relationships with distributors
and suppliers like Ingram (Hill & Jones, 2012).
Amazon.com’s efforts to improve its operations have been successful.
The company wanted to increase its revenue base and to achieve this, the
company decided to add a product line after every six weeks. In 1999,
the company bought 46% of drugstore.com. This was followed by the launch
of online auctions and later on it bought 35% stake in homegrocer.com.
Other product lines were bought which made Amazon.com the largest
selection platform. Zshops and All Product Search have made the company
reduce its marginal costs for providing one-click shopping. The Customer
Fulfillment Networking (CFN) is a strategy to source directly from
producers and publishers rather than wholesalers who provide drop
shipping at a premium. The company used this strategy to increase its
gross margins (Landau, 2013)
The company also decided on providing hassle free, same or next day
fulfillment on their items. This is important in enhancing customer
loyalty and satisfaction, repeated business referrals and an increase in
market share. The company invested in five additional warehouses in
order to achieve same or next day fulfillment. It also lowered the
operating costs and empowered Amazon.com to respond to its
competitors’ pressures (Wittekind, 2013).
Customer Fulfillment Networking (CFN) enables dynamic commerce as well
as making the experience fulfilling. It results to profitability and
increased demand for commodities. Amazon.com pioneered the strategy
which entails integration of the customer’s applications in managing
client- company management. It is made possible by the dynamic and
intelligent personalization of the process which ensures that the
customers’ demands are met. Other drivers of the strategy include
virtual integration across the web, maximum visibility and
responsiveness to supply and demand as well as the dynamic nature of
demand and supply. The company has developed its own applications such
as page design and Order Management Systems (OMS) thus increasing its
competitiveness against other companies (Garty, 2003)
Amazon.com carries a large amount of inventory and avoids overhead
because it orders directly from publishers and producers. The company
gives orders to the producers and publishers on the number of copies to
print. They range from 5000 to 50000 copies. Best-selling authors’
printings are set higher than the others. Amazon.com receives the
product and routes it to its storage location depending on the profile
of the product. Products that are too large for smooth conveying are
taken to unique locations (Gosnell, 2005). The distribution centers are
divided into two reserve storage locations and forward pick locations.
According to Amazon.com, forward pick location is the most prime
location. At this location, pickers select products to fulfill the
orders. At the reserve storage location products are replenished before
they are moved, to forward pick storage location. Other prime locations
include library bins and pallet bins (Gosnell, 2005).
Library bins resemble bookshelves and have bins which can store a
smaller number of items. Pallet bins, on the other hand, are locations
associated with warehouse environments. Locations assigned depend on
days of cover and velocity to bin type. A minimum or a maximum
replenishment system is used where products have to be replenished in
case inventory drops below the minimum days of cover level. Velocity to
bin type is the volume in cubic metres moved through the distribution
centre over a specified period. Storage may also depend on the demand of
the product. Highly demanded goods are better of picked from library
bins than from case storage. However, case storage options are preferred
as compared to library bins, which require daily replenishment
Amazon.com has done a lot to gain control over its suppliers and
distributors. The company is mostly interested in fast moving items.
Best sellers get the first priority in Amazon.com. The company has also
followed the traditional wholesaler method thus making it benefit from
authors who do not want to publish their books as eBooks. The company is
able to keep its eBook market segment under control since the publisher
does not have control over his books prices. The company can, therefore,
challenge any prices set (Bausch, 2003).
Amazon offers free shipping services to its customers, which might
affect its financial position in the future. The company should consider
charging shipping fee at a discounted rate. The company should also
consider exhausting all the markets especially in Asia and Africa, which
will create employment opportunities and also strengthen its brand name.
Amazon.com should also outsource some of its functions. This will ensure
that they concentrate on innovative aspects of its operations.
This essay evaluates the operations of Amazon.com. The company has
become the symbol of internet business, and it is the leading online
market for books and other products. Its success can be attributed to
effective marketing strategies as well as a wide selection of products
thereby making it distinct from others.
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COMPANY ANALYSIS PAGE * MERGEFORMAT 2
Amazon.com: COMPANY ANALYSIS PAGE * MERGEFORMAT 1
Amazon.com was founded by Jeff Bezos who was a computer science, as well