Online shopping became one of the most common things for people around the world. It is, as usual, today as going to the brick-and-mortar stores. However, online shopping also became one of the significant parts of the global economy with its top players such as Amazon.com, for example. Amazon is the largest Internet-based seller in the USA. The company started as an online seller of books, but later, Amazon became the platform for a variety of goods and services to sell. It is, probably, the quintessence of online shopping as people know it today.
The company does not have brick-and-mortar stores, but it has website versions in other countries, providing customers abroad with the same services and opportunities. It should be noted that Amazon represents itself as the company of innovations, developing its own products such as Kindle, Fire Tablets, for example, and several services under the Prime brand (About Amazon, 2016). Online shopping still has the potential to develop, and Amazon is the pioneer in many areas in this market, so the company has a future full of plans according to own representations.
Analysis
More and more people shop online, and they start to purchase goods unusual even for Amazon. The article by Riaz and Raman (2015) evaluated the emerging trends in online shopping worldwide, and the authors concluded that people started to buy literally everything online because it became more convenient and suitable for them. Amazon is focused on the products and services that people used to buy online. However, modern internet users buy even groceries online because such a channel of distribution is the most appropriate one in terms of time and effort spent. China is the top country in the list of purchases made online via mobile phone (PWC, 2016), so maybe Amazon should start to provide new services on this tremendous market instead of selling books online. However, according to the Nielsen Company (2010), six years ago, books were the most expected purchase online, so maybe Amazon is not that fast-reacting company after all. The trends change very quickly these days as it is clearly stated by Riaz and Raman (2015), and Amazon, as the company of innovations, should be more adaptable to the changes.
The point is that behind the delivery by unmanned aircraft that should be implemented by Amazon in the nearest future (About Amazon, 2016), the company may miss the major trend: people start to seek opportunities to buy online literally everything. It can be food, services common for offline retailers, and many other things an online seller with twenty years of experience may omit as not worthy of attention. According to Gregersen (2015), Jeff Bezos, the founder and CEO of Amazon, is busy with experiments according to his words: “Experiments are key to innovation because they rarely turn out as you expect and you learn so much” (par. 4).
Meanwhile, Riaz and Raman (2015) state that it is necessary to re-evaluate the online retailing business to see other, more trendy opportunities offered by the global market itself. A modern internet user knows that most everything can be purchased online. Such a person does not think about how it is done because technologies do not matter anymore. The convenience matters these days. If a pack of chips is delivered within 10 minutes to the porch of a house, it is convenient and quick. It does not matter who did it and how for a regular online shopper. The spectrum of goods and services is more important than technology providing it. It makes Amazon rather vulnerable because people do not want innovations, but they want more items on the shelf.
Riaz, A., & Raman, S. (2015). The emerging trend of online shopping: A literature review. International Journal of Accounting, Business, and Management, 1(1), 1-6. Web.
The Nielsen Company (2010). Online shopping around the world. Web.
Amazon.com is an electronic commerce company. It is the largest online retailer as far as the US market is concerned. The company was founded in 1994 by Jeff Bezos but it went online in 1995 (Beaumont 11). It should be known that the company was initially known as Cadabra, Inc. The current name (Amazon.com) was inspired by the Amazon River which is one of the largest rivers in the world. From a broad perspective, the name implies a large company.
Because the name starts with an A, the founder knew that it will always show at the beginning of alphabetical lists. The company initially started as an online bookstore but it has been diversifying to sell other products like CDs, MP3s, electronics, and others. It started issuing its shares to the public in 1997 (Spector 12). The company has been profitable as time goes by and this is good news based on the internet bubble. Amazon.com has revenues of US$ 34.2 billion and it employs 33,700 people (Beaumont 21).
Discussion
It should be known that Amazon.com has an active website and this is because it is an online company. In this case, there are various pros and cons of using its webpage. We have a large number of pros that can be evaluated. It is easy to get started on the Amazons webpage (Spector 37). This is because it has a large number of products and anyone can be incorporated. It should be known that the website provides step by step instructions on how to go about various aspects. This is because Amazon stands out as the most widely used online store in the world.
From a broad perspective, the webpage allows different users to submit their reviews. Amazon.com allows an individual to open up to more than 100 stores and this is good (Spector 24). In this case, a user can be able to sell some product units as time goes by. People can later link this website to their blogs. The webpage offers a huge selection of products and this allows individuals to even sell ads and banners. Wholesomely, Amazon has a lot of opportunities that can be seized by a wide range of users.
It should also be known that Amazon.com has cons that need to be evaluated as far as using its webpage is concerned. The website offers a low referral fee for those who might wish to make a sale. Amazons webpage has been bashed because it only offers a one-day cookie. This can be termed as an unfair deal especially for those who want to make money (Beaumont 41). Responses to using Amazon’s website have not been fully taken care of and this is an aspect that needs to be looked at for sustainability.
Conclusion
Many people use Amazon.com and it has been projected that the website has 615 million users. This means that various reasons might compel people to use Amazon.com. Most users prefer Amazon.com because it is the most convenient way of shopping around for various products (Beaumont 19). It has been proven that Amazon leads the industry in media sales and books and this might be the reason why many people find it easy (to use it). The webpage offers various individuals an opportunity to make money online and this is a good reason to visit Amazon.
Works Cited
Beaumont, Claudine. Amazon removes ‘paedophile guide’ from Kindle store. London: The Telegraph, 2010. Print.
Spector, Robert. amazon.com – Get Big Fast: Inside the Revolutionary Business Model That Changed the World. New York: Harper Collins Publishers, 2000. Print.
Amazon.com is one of the most recognized company, known primarily for its online retail business throughout the world. The growth rate of the firm is substantial, and it is not coming from a single source. The company has an effective strategic plan to ensure a sustainable growth rate. For this reason, the firm uses merger and acquisition as a tool for growth. The Ansoff Growth Matrix analysis of the firm’s activities shows that the company is intensively diversifying its portfolio. It is well known that diversification reduces operational risks and optimize profits and therefore growth of a company.
From the history of Amazon.com merger and acquisition operation, it is found that the company is actively acquiring new firms from different industries. In the year 2013 Amazon.com acquired a software production firm named Ivona Software, afterthat it gained Goodreads, which is online based bookselling company. Liquavista and Tenmarket Education companies were also purchased by Amazone. The same sort of acquisition practices can be seen in the following three years (2014, 2015, and 2016) when the company acquired 13 new companies from different industries such as gaming, books, and online television, etc. The most interesting thing can be noticed is that Amazon.com purchased 11 companies during the year 2017, which is very rare. This evidence is clearly stating that Amzon.com is growing through merger and acquisition, which is having a positive impact on its growth strategy. According to Xu (2017), assets reallocation process through merger and acquisition activities has a significant positive impact on growth rate and productivity of firms. Hence, it can be concluded that Amazon.com has been following an effective strategy to grow its business over the time.
The company also tried a market development strategy to grow in number, they have taken its services and products in different countries of the world. Amazon.com is consistently expanding its business operations in different countries of the world. From the sales data it is seen that the company has been generating a significant growth in its international sales in 2014, 2015, and 2016 (14%, 21%, and 26% subsequently). Along with the merger and acquisition technique, it was another great way of expansion.
In addition to that, a product development strategy was also followed. The company kept offering new products with the help of its acquired production facilities and businesses. It has also helped the firm to increase its domestic and international sales.
From the financial statements of the company, it is seen that the firm has invested 5.1 billion dollars in 2014, then 6.4 billion in the year 2015, and it increased to 9.9 billion dollars in 2016. The company had to finance around 4.4 billion in 2014, 3.8 billion in 2015, and 2.9 billion in 2016. These particular points shows that the firm has been performing great at the time. The investment has been increasing significantly while the requirements for external financing were going down. It implies the firm was making more profits in the recent years. Therefore, it can be concluded that the merger and acquisition strategy of Amazon.com is effective for its sustainable growth rate. This finding is also consistent with Xu (2017).
To measure the impact of the acquiring strategy of Amazon.com precisely it is important to analyze the financial performances of the company for the given period. The financial performance statement is showing that the overall profit of the company has increased from 178 million (2014) to 2.2 billion (2015), which rose to 4.2 billion in 2016. Evaluation of the growth of operating incomes show 12 times growth in 2015 and 2 times growth in 2016 compared to the respective previous year’s performance of the company. The acquisition data is showing that it has been increasing gradually also the financial performance has been increasing in the same time frame. Therefore, it can be asserted that the growth strategies, especially merger and acquisition strategy of Amazon have a positive impact on the financial performance of the firm.
The profitability of a firm is dependent on the growth of an industry, especially if it is an online retail industry like Amazon.com. The growth of a firm usually influenced by the external conditions of the market however, the company should have a level of operational capability (Feng, Morgan, & Rego, 2017).
As we can see Amazon is capable enough to absorb a significant growth in the market, hence it can be said the growth in European market will have a significant positive impact on the current income of the company. From the profit loss account of Amazon, it can be found that the firm is suffering from a loss in the international market (600 m, 700m, 1.2 billion) in the year 2014, 2015, and 2016. Majority of the international market of Amazon would fall under the European zone. Due to the economic crisis in the zone, the retails consumption has plummeted and it has affected the profit of Amazon, pushing it to the loss. A growth in the European consumer market would increase the sales of the company in that region and therefore would help the firm to make a substantial profit.
References
Feng, H., Morgan, N. A., & Rego, L. L. (2017). Firm capabilities and growth: The moderating role of market conditions. Journal of the Academy of Marketing Science, 45(1), 76-92.
Xu, J. (2017). Growing through the merger and acquisition. Journal of Economic Dynamics and Control, 80, 54-74.
The term algorithmic pricing refers to a technology-based practice in which the prices of items sold online are set in a way that attracts many potential customers with the aim of maximizing the seller’s profit. The technique applies dynamic pricing algorithms, which rely on four main types of data. First, it depends on the statistical and probabilistic data of potential customers. Second, it relies on the competitors’ prices in which the seller uses the algorithms for the automatic detection of the lowest prices of substitute products currently offered in the market.
The third factor is the personal information of the potential buyers in terms of their demographics and interests. Last is the seller’s business information, which is the target selling point. Amazon is the largest online company in the United States and Europe. It offers a platform for the seller to interact with potential buyers. In this context, the study explores the pricing algorithms used by the Amazon sellers to increase sales volume, improve their ranking and customer feedback.
Description of Algorithmic Pricing
Algorithm pricing provides online business with increased competitivity, however it also has emerging challenges. Poorly applied pricing algorithms could not execute the desired operations. As a result, they can develop unexpected results, especially in a diverse marketplace flooded with other forms of algorithms such as the case of Amazon. At the same time, the collusive strategy applied by the dynamic pricing algorithms causes damage to consumers (Lindner, 2015).
For instance, several individuals have succeeded in using the algorithms to implement a price-fixing strategy. The main challenge is that the regulators and the public do not have the knowledge capacity to control the prevalent behavior of using algorithmic pricing by strangers. However, it is important to understand the strategies employed in the algorithmic pricing in the Amazon market and the extent of the prevalence of their strategies (Taft, 2014). The effective use of the strategies has improved Amazon’s customer experience over the years.
The main aim of using the algorithmic pricing technique is to ensure that products are given priorities in the Amazon landing page. The algorithmic pricing allows sellers to compare their prices with those of their key competitors before setting their prices. That way, they will list their products at prices that will attract a large number of customers. The description of the product, its advantages, and other beneficial details will also act as precipitators of large traffic to an Amazon listed product (Rey, 2015). With a large number of potential buyers, the possibility of increasing their sales volume is high.
The algorithms used for setting prices of individual products in Amazon change frequently and drastically. The math behind the algorithmic pricing is hidden from the public (Taft, 2014). Nevertheless, it has vast effects on the customers’ perceptions and decisions to buy products. The company has more than 300 million customers who actively visit and purchase products from its website. It uses an algorithmic pricing strategy to allow retailers to interact and sell their products to customers.
In this context, the algorithms have been used to shape the marketplace for sellers in Amazon (Lindner, 2015). The use of algorithmic pricing strategy is exhibited on the website through the “Buy Box” button, which pops initially as a recommended purchase. It is the most valuable feature of algorithms in the current internet marketing used on Amazon.
The technology ranks all sellers of a product category in terms of their prices and shipping. Algorithmic pricing appears to be the essence of the customer-centric strategy used in Amazon. As a result, products linked to Amazon have a higher ranking with a huge volume of sales (Rey, 2015). The inclusion of shipping in the product details gives products undesirable ranking. It is essential to note that the algorithm which selects products into the Buy Box button depends on various aspects beyond the pricing. Many customers developed trust in Amazon because it offers products at considerably great prices. In addition, it offers a vast selection of products, excellent customer services, fast and free delivery of the purchased product (Taft, 2014).
The algorithmic pricing technique considers all the above components during the product listing (Lindner, 2015). The algorithmic pricing is customer-centered and it awards the Buy Box button to the seller whose products in that category have the lowest price. It is important that a seller has the listed products in the store and can deliver it when needed. In order to increase their probability of getting the Buy Box for their products, sellers are currently paying Amazon to store and ship their products through a program known as Fulfilled by Amazon (Taft, 2014).
Analysis and Critique
The analysis of Amazon’s algorithmic pricing strategies is based on the concept of the Information Economy. The concept emphasizes the increased use of information to transact business activities. In this context, the primary material to facilitate economic activities is knowledge-based information. The theory of Information Economy promotes the convergence and integration of various communication aspects through data processing technology and information technology to conduct business (Taft, 2014).
Through the IT and internet technology, the emergence of e-commerce in the economic realm has enhanced the application of Information Economy theory. Through e-commerce in platforms such as Amazon, sellers and buyers use digital information to interact and transact businesses. In that sense, knowledge-based information becomes the primary material through which websites such as Amazon promote business operations (Villasenor, 2015).
The analysis of the Amazon pricing techniques using algorithms provides a diverse knowledge of the concept because of two main reasons. First, Amazon is the largest online company in the United States, Europe, and other parts of the world. Second, the company offers specific APIs designed to enhance algorithmic pricing (Lindner, 2015).
The main feature of the pricing algorithms at the Amazon website is the Buy Box feature. It determines the sellers who feature on the landing page of the product. The chosen company becomes the default seller of the product on the Amazon website. In addition, customers use the Buy Box feature to select and add the purchased products to their shopping cart (Taft, 2014). The algorithmic feature relegates the unselected sellers to a separate web page. It plays a critical role in the successful sales at the Amazon, even though the exact feature and weights applied by the Buy Box algorithms are not identified (Dewey, 2015).
For that reason, it is important to develop a comprehensive understanding of Amazon’s Buy Box algorithm. Companies that sell their products on Amazon can choose this dynamic pricing strategy to make the best use of the website. That way, they increase their chances of being given the first priorities by the algorithms. In order to understand the pricing algorithms used by Amazon, it is important to treat the target price of every product differently (Villasenor, 2015).
In order to provide a comparative examination of the business practices between sellers who use algorithms and those who do not use them, it is essential to assess the four seller level features (Taft, 2014). These include the products’ lifespan, the size of inventory, feedback level, and ranking of the products on the seller page. In terms of the product lifespan, the analysis is done based on the first time a product is offered in Amazon to the last time it is withdrawn from the website (Villasenor, 2015).
Sellers who use algorithms to attract customers to their products take longer periods than those who do not use algorithms. It explains why the seller who uses the algorithmic pricing technique in Amazon realizes high sales volume. Therefore, a longer lifespan of their products and services implies they have larger inventories (Rey, 2015).
Notably, algorithmic sellers sell a smaller number of unique products, which means these companies specialize in relatively fewer products. It can be argued that they focus on products they can get in bulk at wholesale prices (Vanni, 2016). Customers who buy products from Amazon rate their sellers based on Amazon’s 0-5 scale. In addition, they provide feedback through a feedback platform ranging from zero to 100 for a seller on the New Offer page.
Sellers with insufficient feed are not displayed in the sellers’ statistics. Sellers who use algorithmic pricing have higher cumulative positive feedback compared to the non-algorithmic pricing users. The former has significant advantages in terms of feedback compared to the latter (Villasenor, 2015).
Customers who use algorithmic pricing to win the Buy Box many times create a self-fulfilling cycle. The platform seems to give sellers an opportunity to reach customers. Once they have won the Buy Box, they will accumulate higher sales than their competitors. In addition, they will still keep the Buy Box because of the ongoing higher sales and more customer feedback (Rey, 2015). The sellers can then decide to increase their prices and that might not affect their sales.
That aspect is unfavorable for the new sellers who might want to use algorithmic pricing to be listed and win the Buy Box. The observation explains why algorithm sellers charge their products higher. Once they have acquired a large number of customers, they will use the Buy Box they had won to retain them. As a result, customers still buy more products of the old sellers in Amazon than those of new companies selling at lower prices (Taft, 2014).
Conclusion
An algorithmic pricing strategy is an effective approach in stiff completion where many companies offer the same products. It helps the seller to set the prices of products to values that will be reasonable to customers. Although it can help a seller to increase sales volume, algorithmic pricing can be a disaster when everyone is using it. Certain sellers can lower prices to unreasonable values with the sole objective of diverting customers’ attention from the substitute products. Because of the inadequate security of the algorithmic system, untrusted users might manipulate the algorithms to create prices, which favor their products only.
To ensure the appropriate use of algorithmic pricing strategy in Amazon, certain issues need to be addressed. Amazon must set and control standard prices for every product category so that the lowest or the highest price is not extremely different from the set prices. That way, every seller will have a fair competition ground. In this sense, customers will rely on the sellers’ information apart from prices to choose products and services. Setting standard prices with small fluctuation margins using the algorithmic pricing system will protect customers who will now base their decisions on quality and selling tips other than prices.
References
Dewey, C. (2015). What you don’t know about Internet algorithms is hurting you. And you probably don’t know very much!. The Washington Post, 5(89). Web.
Lindner, M. (2015). Global e-commerce set to grow by 25 % in 2015. Internet retailer, 500(197). Web.
Technology is deeply integrated into human society, and people can hardly imagine their life without various devices and gadgets. Shopping is one of the areas that has been transformed significantly. Shoppers do not have to leave their houses to receive goods. Amazon is one of the leaders in this area. A new product (the company introduced in 2014) is an innovative item that has received mixed reviews from shoppers and analytics. Amazon Dash is a device that enables the shopper to purchase products through scanning barcodes of packages they have or even simply naming the product they need (Kumar 2016). The device has a shape of a tube that has a barcode scanner, as well as the voice recognition sensor, and, of course, Wi-Fi enabling component (Shin, Jeon & Park 2016).
However, the innovation has turned out to be rather unpopular among customers who tend to prefer shopping through more conventional channels offered by Amazon. Tuttle (2016) states that the major factor discouraging people from buying with Amazon Dash is the price of goods as the products come at a higher price. There are also certain inconveniences as the shopper does not see the price at once, but has to go online or wait for a message to find out this essential detail. It is clear that the product needs some changes to become more popular. The new product can be called Amazon Magic Wand, and it can be described and analyzed with the help of the STOF model (see figure 1).
Figure 1. STOF Model for Amazon Magic Wand.
Product Description Using STOF Model
Service
The target group of the new product will be children and their parents (or other adult close relatives). Amazon Magic Wand can be a perfect gift for children who can imagine being wizards. The child can use the wand when in a supermarket or book (toy) store. Pointing at a barcode will result in buying an audio version of the book chosen, or purchasing a toy (or a print book) that will be delivered to the address mentioned in the customer’s profile (or provided additionally if a call is ordered). Some moments after the use of the product, the customer receives a message (and email) with some details of the product, request to affirm the purchase, a link to order premium delivery, and a link to order a call.
The audiobook can be downloaded after the affirmation and can be listened to through the device. The premium delivery can be provided for extra payment, and it can include the delivery within three or five hours. This is one of two crucial features customers value, so prompt delivery is likely to contribute to the product’s popularity (Tuttle 2016). The wand can be a hit during the Christmas period when children make wish lists waiting for their presents while parents are trying to buy the necessary items. Apart from the new form and meaning, the product will also have a new feature as the best prices will be offered.
This is the other vital feature that will make the product more valued as the customer expects the best prices from Amazon, which is its competitive advantage (Tuttle 2016). There can be a guide on how to use the item as well as stories to tell children. For example, children can be asked to collect points (for desirable behavior) to be able to use the wand. It is possible to say that the Wand knows better what exactly the child needs if some items are not bought. The child can be given the wand on special occasions (a birthday). Importantly, it is possible to introduce a service associated with the financial aspect. The customer’s profile can receive an additional account (or a card) with a certain limit that can be spent automatically without any affirmation.
Technology
Amazon Magic Wand will have the shape of a magic wand. Harry Potter’s wand can be an example. The device will be thick at one end and of the size of a pen on the other side. The color will be brown or black (to imitate wood), silver and pink (for girls). The product will have several buttons: the button to switch it (it automatically turns on Wi-Fi), the button to play the most recent recording, the one to play the favorite recording, as well as the button to decode the barcode and purchase an item. The buttons will be in the form of small buds for darker wands, while the buttons can be in the form of a star for silver and pink devices. As for playing audio files, pushing the button will mean choosing the following recording on the list (which can be controlled through the customer’s Amazon Profile). The wand can have recordings of some signals. For example, when the device successfully decodes the barcode and the item is added to the list, there can be some melody or a magic sound.
As to further development, the wand can be equipped with a fingerprint scanner. Children may think that the magic wand functions in their hands only as it is often described in movies. The wand will be plastic to reduce the product’s costs, though it is possible to consider making rub devices with the use of organic materials. This can be a premium line that can have a higher price. Furthermore, fixtures or cases for wands can be sold. These items can be used for storing the product and recharging it. Moreover, the case (fixture) and the wand can serve as a nightlight.
Organization
It is possible to note that the company will need only some new arrangements to come up with the new product. All the resources are already available as the new product is characterized by features and services the company is already providing. Some of the arrangements will be associated with the production of devices that acquire a new form. Instead of a futuristic tube, there will be a magic wand, which means that the organization may use the Quirky platform to develop a new design. Since the collaboration between Amazon and Quirky has already resulted in some successful projects, this collaboration will also be efficient and beneficial (Välikangas & Gibbert 2015).
Amazon may need to find new manufacturers, but this can be optional if the existing partners will be able to produce the product with the changes mentioned. In any case, numerous Chinese original equipment manufacturers (OEM) can be potential partners. The new feature associated with the calls from the call center will also require quite a few changes. The company may need to expand its call center and IT staff. Some training may also be needed.
At that, Amazon will have to invest in the development of its delivery system to make it more efficient. The delivery within several hours will be available for US residents. The organization may consider acquiring companies specializing in such kinds of deliveries, which has already enabled Amazon to improve its delivery services (Välikangas & Gibbert 2015). The expansion of the items available can also need investment. The organization should make sure that information management is effective and appropriate.
It is possible to address this issue through an effective value chain. One of the strategies will include publicizing particular items that are available. The major channel of the advertising campaign will be the Internet, but other media should also be included. It is possible to focus on television (especially children’s channels) and some print sources (for example, comic journals). The inclusion of hits of sales into the range of available products is also essential.
Finance
As far as the pricing strategy concerned, it is possible to use a combination of the value and psychological pricing methods. Since there are no similar products so far, Amazon can set the price that is not based on the cost exclusively. The value pricing method is associated with the focus on the value of the product rather than particular costs and features. It is essential to concentrate on such features as convenience and uniqueness as well as the possibility to make children’s dreams come true. The price of Amazon Dash is $4.99, but it is quite basic as the company focused on facilitating sales through Amazon rather than sales of their Dash. Amazon Magic Wand can be sold at $9.97. This price is potentially more attractive than $10 due to people’s psychological traits.
Therefore, the profit potential will be $29,000 (approximately) for the pilot shipment of wands (1,000 items). It is important to note that complimentary products (for example, cases) are excluded. The price of an item will be $7 (approximately). The expected revenue is $99,000. Nonetheless, the major aim of the product is also to facilitate sales of toys and books, as well as to explore new aspects of online shopping. Hence, the price of the product itself is not the central point.
To come up with the market positioning strategy, it is necessary to address such aspects as the target market, promotion, price, and place. The pricing strategy has been described above. It has already been mentioned above that the target market includes children and their parents who will actually buy the item as well as will use it (affirm purchases, pay, communicate with call center specialists, if necessary). Thus, the major needs of the target customers are the convenience, availability, and a magical component. In fact, the major focus should be placed on the magical aspect as the company will, basically, sell the fairy-tale to its customers.
The promotion will involve scenes of little wizards (aged between five and twelve years old) using the wand. Another scene can feature a child using the wand in a store, and the same child holding the item gained with the help of Amazon Magic Wand. Another important message to articulate will address adults. There can be a scene (or image) featuring an adult talking on the phone or purchasing the item through Amazon. The central message can be as follows: ‘Help your little wizards make their dreams come true!’ Placing is an obvious choice as the wand will be sold through the company’s website.
Since Amazon Magic Wand is a new product, it will be the first one in the market, or rather it will create the market. Therefore, it is possible to expect 100% market share during some period (until followers come up with similar products). At that, Amazon can maintain its leading position due to its resources and the well-established brand. It is necessary to note that the company will use Quirky, so there will be certain revenue sharing in the partner network. However, Amazon should negotiate a fixed price for the design (as well as other ideas) provided through the platform. The sum will depend on the ideas and their value. First, the product will be sold in the USA, but it can also be sold in Canada and Asia if it turns out successful enough. The growth strategy will involve the expansion of the markets mentioned as well as penetration into European markets.
Risk Management Plan
Risk management is an indispensable part of any product development project. It is important to develop a risk management plan to make sure that all the risks are identified and mitigation strategies are available. The plan developed focuses on the production and launch of sales as well as the first year of the product on the market (See Table 1).
Table 1. Risk Management Plan.
ID
Risks and Outcomes
Probability, %
Impact, 1-5
Mitigation
1
Slow design process
50
3
Provide a time limit for the project and promise a reward for the first five (appropriate) designs.
2
Production delays can be associated with the partners’ inability to provide the products while customers will be eager to buy the item for such occasions as Christmas, Valentine’s Day, Easter, and so on.
40
4
Develop partnerships with several OEMs.
3
Customers may find the product unattractive
50
5
It is possible to implement some research to identify potential interest in the product. If the product does not sell, it will be possible to use it as a gift for loyal customers in terms of various loyalty programs.
4
Similar products can appear at a lower price. The risk increases if a similar item appears before the launch of Amazon Magic Wand.
50
4
The product should be protected by the patent. It is also essential to make sure that all the stages of production are completed timely.
5
Quality issues may arise, which can lead to customers’ dissatisfaction and the decrease in sales.
30
4
It is essential to develop partnerships with well-known organizations. The agreement should also include quite strict terms concerning the product’s quality.
6
The company may fail to provide premium delivery while the ordinary one-day delivery can result in high costs, which will make the product less profitable and less popular among customers.
50
5
It is important to analyze regions where one-day delivery is a problem and address the issue through developing partnerships with (or acquiring) local online sales companies or developing partnerships with local delivery companies.
7
The increase in components’ costs will inevitably result in a high price of the product, which may make customers less eager to buy it.
20
4
Implement a constant search for partners.
Discussion and Conclusion
The brief analysis of the product shows its potential. The experience of customers who have bought Amazon Dash provided helpful insights into the most valued features of the IoT (Internet of Things) device. It is clear that the product should be characterized by such features as magic, convenience, speed. Tuttle (2016) stresses that customers dislike Amazon Dash experience as they still need to go online and see the price or wait for the price to be shown. With the new product, the person who pays will not be the one to use the device. A customer may learn about the purchase via a message. The adult decides whether the product will be bought while the actual user of the device (the child) can be told that the wand refused to give the item due to some reasons.
The fact that prices were significantly higher if bought with the help of Amazon Dash was another contributor to the device’s insufficient popularity (Tuttle 2016). This issue is addressed as Amazon Magic Wand will provide products at a price available for all Amazon users. This will be partially achieved through the higher price of the device as the price of Amazon Dash was very low, and products’ prices compensated this loss.
The delivery is another important factor contributing to the product’s success. There are no issues with audiobooks as they can be downloaded within minutes (which mainly depends on the one who pays for products). However, children can believe in magic if they get what they want within a short period of time. Using a magic wand means having something at once, or, at least, at home or the following day. Therefore, Amazon will have to develop its delivery services, which will be beneficial for other projects of the organization. Clearly, e-commerce is evolving at a considerable pace, and there are various competitors who may deliver goods faster than Amazon can. Therefore, prompt delivery is the key to the leading position in the market.
It is noteworthy that promotion becomes the most important stage of this product’s positioning activities. It is vital to make sure that potential customers understand the value of the product. Thus, adults should understand that they can use the product as a behavior-shaping tool since Amazon Magic Wand can be a reward for the desirable behavior (having good grades, being polite, helping with chores, and so on). It is possible to launch various promotional activities (for example, in malls).
In conclusion, it is possible to note that Amazon Magic Wand is a product developed as a version of Amazon Dash. The new product focuses on children and such products like toys and books. The product has great potential as there are no similar items, while the interest in technology and magic is rather constant among people. Amazon has all the necessary resources to produce and make the product popular. At the same time, some investment is required as the organization may need to develop new partnerships, implement some acquisitions, and improve some of its services. However, the major goal of the product will be achieved as the company will be able to explore peculiarities and the potential of IoT products.
Reference List
Kumar, R 2016, Strategic financial management casebook, Academic Press, San Diego.
Shin, H, Jeon, B & Park, JW 2016, ‘Method to design and analyze an interactive product based on design elements for creating an IoT-based service’, International Journal of Smart Home, vol. 10, no. 10, pp. 229-238.
Tuttle, B 2016, ‘Why people aren’t using their Amazon Dash Buttons to buy stuff’, Time, Web.
Välikangas, L & Gibbert, M 2015, Strategic innovation: the definite guide to outlier strategies, FT Press, Old Tappan.
How Amazon’s Corporate Strategy Affects Its Supplier Selection Criteria
One of the major characteristics of Amazon’s corporate strategy is the company’s strict orientation toward the needs of consumers. In other words, Amazon can be recognized as an ultimately customer-centric business whose main point of difference is the ability to deliver purchased goods within just one day or overnight, as well as replace the purchases that were broken or damaged with no fault of consumers. As a result, Amazon’s extremely organized and efficient supply chain is the backbone of this business. In addition to fast delivery, Amazon’s competitive advantage also is tightly connected to its prices. In other words, Amazon is known for selling a wide range of goods that can be delivered within one or two days for the prices lower than those of its competitors.
As a result, criteria for the selection of suppliers help the professionals of Amazon to sort through suitable and not suitable vendors. Specifically, since Amazon’s websites are very busy and have a large base of consumers in many countries of the world, Amazon can negotiate prices so that suppliers can sell more items for lower prices and still generate profit. However, the example of the MacMillan case shows that there are challenges in such negotiations. In particular, MacMillan refused to lower their prices, to which Amazon responded by disabling the “buy” buttons on the company’s products. In turn, MacMillan prepared to leave Amazon and take its business to Apple. As a result, Amazon had to agree to MacMillan’s terms. This case signified that regardless of Amazon’s striking success, the company has to compete against some very powerful rivals who can take over at any moment, and so Amazon has to maintain the highest level of quality, the lowest prices, and the fastest delivery and shipping time to retain its customers.
Amazon’s Sourcing Strategy
Jeff Bezos, the leader of Amazon, started this business as online retail of books. Eventually, as Amazon’s success grew, it started to make sense to expand the business. As a result, the sourcing strategy of this business changed as it began targeting music records in addition to its selection of books. Further, Amazon expanded into a variety of other markets, thus diversifying the list of goods that could be purchased on its websites. Also, very quickly, the leaders of Amazon began to develop a so-called eco-system similar to the one that was built by Apple.
To be more precise, Amazon created its digital reader – Amazon Kindle that aligned with the company’s strong presence in the electronic books market. Alongside the expansion of the selection of goods sold online, Amazon also made several acquisitions that boosted its profit and performance allowing the business to grow. Finally, recognizing technologies as one of the most progressive and profitable future markets, at the beginning of the 2000s, the leaders of Amazon decided to expand into the IT market and start offering website development services. Eventually, this endeavor resulted in the creation of Amazon Cloud Drive, as well as Amazon’s ownership of a variety of large online companies such as IMDb, A9, pets.com, and woot!
Amazon’s 2012 Losses: Causes and Treats
At the end of 2012, Amazon posted its first quarterly losses in over five years. These losses were caused by several different factors and management decisions. First of all, one of the causes of the losses was a large amount of money spent on the establishment of several new distribution centers. The second cause was the decision to continue the development of Kindle. Both lines of investment resulted in the decrease in capitals that Bezos hoped to address during the holiday season even though the competition was very tight during the period.
The aforementioned losses resulted in the occurrence of additional threats to Amazon’s business. In particular, the accommodation of new distribution centers would result in some inevitable changes within the company’s supply chain that, consequently, could lead to technical challenges interrupting Amazon’s delivery operations. In turn, these outcomes could cause the loss of clients and a slower profit acquisition.
Prices for Online Goods
The prices for goods sold online are often lower than for the goods offered in brick-and-mortar stores. This is the case because the prices for the goods sold physically are partially comprised of the costs of rent and maintenance of the stores. Free from this burden, online retailers can afford lower prices. In the case of Amazon, the online interface of its websites also attracts a large customer base. In that way, vendors who choose to sell their goods on Amazon can enjoy larger margins than they would by selling independently or using brick-and-mortar stores.
At the same time, operating online, Amazon is threatened by large physical retailers such as Barnes and Noble and Walmart because their stores provide customers with an opportunity to touch the goods and evaluate them before deciding to purchase. In this regard, Amazon cannot help but hope that some buyers will have faith in the quality of goods offered online. In that way, Amazon has an opportunity to grow as the new generation of Millennials strongly prefers online shopping to physical shopping. However, Amazon also faces a threat from the existing powerful competitors in both off- and online segments, as well as the entry of new competitors in the markets where it operates.
The news is overwhelmed with the fact that the American company called Amazon is choosing one of the country’s most popular and prosperous cities to establish its second headquarters there. At the present moment, the corporation is choosing from the list of only 20 cities, including Denver, Seattle, Chicago, Indianapolis, and some others. The following text will present a list addressed to the HR department of Amazon that will represent Denver and consider some advantages and disadvantages that can occur if the Amazon’s second headquarters will be organized in the city.
To begin with, it is necessary to mention that the city of Denver that is situated in Colorado has beneficial tax incentives that Amazon is currently wanting. Indeed, this state is considered to be one of the most referable environments for business as local rules and laws do not obligate people to pay tremendous labor taxes as in several other regions of the USA.
As Amazon remains one of the most profitable American corporations for an extended period, politicians from the suggested state might be dissatisfied with the opportunity to host the second headquarters of the company. It appears that many local citizens will be attracted by the opportunity to work for Amazon, which means that the government will not receive as much financial means in taxes as it does at the present moment.
Despite all the drawbacks states in the previous paragraph, there is a positive side of considering Denver as the future location for the Amazon Company’s second headquarters’ establishment. For instance, the economic growth of the state has been increasing rapidly in recent years because it employs a tremendous number of people in such spheres as marketing, travel services, and small business.
Therefore, local inhabitants have enough financial means to support transnational corporations by buying their products and using their offers. Due to the growth in economics, the city has been developing as well. However, a significant disadvantage of the Denver city is the fact that it is overwhelmed with bureaucracy and businesses that specialize in this area. Unfortunately, this significantly slows the process of development as people are obliged to waste their valuable time to sign different documents or papers that are intended to allow them to do some work or other profitable activities.
It would be proper to mention that many famous companies already have their headquarters in the city of Denver, including Catalyst, Northstar, and others. The region has one of the lowest crime rates in the United States of America. Moreover, there are many high-quality outdoor facilities and spaces available here. The climate is warm which stimulates local workers to enjoy their professional activities and be satisfied with their jobs as they do not have any weather problems on their way home or to work.
Also, the state will support the company’s strategy as to its confidentiality of bidding processes. People do not have to share their personal information to purchase some items from Amazon. In conclusion, it is necessary to state that Denver is one of the most beneficial places for Amazon to locate its second headquarters. As another advantage of this city, skyscraper buildings situated in the center of Denver that would meet the company’s requests perfectly do not cost as much as their analogs in Chicago, Seattle, Toronto, and several other places that the corporation is currently evaluating.
Information about your company choosing a city in which to establish a new headquarters has been presented by various sources. Multiple media agencies have broadcast news related to the matter. It is a well-known fact that Amazon has established a list of potential cities that includes Denver, Seattle, Chicago, Indianapolis, and some others. In this letter, I will describe all the possible advantages and drawbacks that might occur if the new Amazon headquarters were to be established in Denver.
To begin with, I would like to note that the state of Colorado has created tax incentives that may be highly beneficial for Amazon. Colorado is a very profitable state for running a business on any scale. The state government promotes laws and regulations that help to establish an appropriate environment for new companies. Colorado’s labor taxes are considerably lower than in other states on Amazon’s list.
That is why entrepreneurs in Colorado find a welcoming environment for starting new ventures. The state tries to keep up with the pace of a rapidly developing world. However, in spite of the fact that Amazon is among the most successful companies in the world, many local officials are not pleased with the possibility that their city might become the place for a new Amazon headquarters. It might lead to a situation in which too many people are working for Amazon and thus they would be paying less tax.
This potential scenario has led to many concerns. However, during recent years, state revenues have drastically increased. Many citizens have started working for various businesses or in marketing or services. For this reason, local residents should be able to support a big corporation by consuming its products and services. Economic growth has led to the development of the city of Denver. Unfortunately, it has also resulted in the rise of bureaucracy.
This issue significantly hinders the city’s development because people have to spend time on paperwork in order to get permission to start a new business. Nonetheless, several famous companies such as Catalyst and Northstar have successfully established their headquarters in Denver. They are attracted by the peaceful atmosphere of the city, as the region has very low crime rates. In addition, the well developed infrastructure and multiple facilities play a significant role.
A temperate climate also enhances citizens’ morale and their professional achievements. Therefore, the level of life satisfaction among local people is very high. The final advantage is that the price of buildings that are located downtown and meet the requirements to become a new headquarters for Amazon are not as high as in other states that the corporation is considering.
Taking into account the above mentioned facts, I want to recommend that you establish a new communication strategy in order to collect more reliable information about the state of Colorado and Denver in particular. I suggest holding several online conferences in which we can discuss all relevant issues related to the subject in detail.
The time might be scheduled prior to the first conference via email. It also might be helpful to communicate by phone if it is necessary to delay the conference or inform participants concerning urgent matters. I believe that information about potential employees, local policies, and real estate prices in Colorado can be very useful in helping you to influence the decision of Amazon’s managers regarding the choice of a city for the company’s new headquarters. I think this recommendation could make a big difference for both your company and the city of Denver.
Amazon operates with an approach it calls “working backwards” as well as a focus on high-quality customer service. Its management focuses on 14 leadership principles and seems to be suitable to the challenges it faces. Even though reports indicate that some employees have concerns regarding their workplace, the overall attention to people inside and outside the company is adequate.
Approach
As a competitive approach, Amazon uses a combination of price and non-price advantages, while its distinctive feature is a focus on high-quality customer service. This virtual store offers a wide range of items and emphasises its obligations regarding the quality of the products it sells, which is highly valued by customers. The internal operations of the company are also focused on this approach and include trust in external suppliers and network distributors (Stone 2013). Within the company, the emphasis is on the idea that within a few years, today’s shopping centres will disappear forever and be replaced by virtual shops. An improvement in technology and the reliability of deliveries are the key elements of Amazon’s approach.
As for the approach to product development, the company applies an approach called “working backwards,” according to which it starts with the customers’ desires and expectations, and offers them what they want. The Well-Architected Framework, released in 2015 allows for collecting feedback from various customers. A range of improvements introduced by Amazon subsequently aims at ensuring security, cost-effectiveness, reliability, and performance efficiency (Barr 2016). Amazon strives to continuously enhance its performance. For example, it has developed a significant cloud architecture, and it offers free training courses to employees, thus promoting efforts to provide the best offers to customers.
Management
Amazon’s goal, which has not changed since its creation, is to attract as many customers to its website and sell as many different products and services as possible. Thus the paramount goal is not to become the largest participant in any market, but to become the largest electronic store where one can purchase everything. The organisation strives to achieve this goal for the long term based on a clear plan of action. The company’s management seeks to ensure that customers enjoy shopping, and it has proposed 14 principles of leadership that involve customer obsession, curiosity, hiring and developing the best employees, thinking big, frugality, a bias for action, etc. (Leadership principles 2017).
But some of these principles and the company’s management style, in general, have pushed employees to sabotage, feeling stressed, and doing more and more, as noted by a report in The New York Times (Kantor & Streitfeld 2015). However, Jeff Bezos, the founder and the current director of Amazon, rejects these contentions, claiming that the company creates the most comfortable conditions possible for its employees.
In particular, he calls the report anecdotal and encourages employees to read it carefully and report to HR managers or directly to him if such cases actually occur (Wagner 2015). Bezos argues that the management practices described in the article cannot be true, as it would be impossible to create an innovative and sustainable business under such conditions. Indeed, in comparing the articles cited above, it seems that Amazon operates in an exceptionally well-organized manner and that it also cares about its employees. Perhaps several similar cases did occur, yet their number seems to be small. More to the point, after the publication of such a report, Amazon would be likely to pay closer attention to its management principles.
People
Amazon is the second-largest company after Walmart in terms of hiring employees, including office employees, salespeople, seasonal workers, and other staff for various positions. The company’s attitude towards employees focuses on the fact that only small groups can succeed. In this regard, Amazon does not have a particularly complex vertical hierarchy in management, and the organization consists of the work of small groups.
When selecting personnel, the company’s HR managers carefully examine every candidate and select only the best ones (Bort 2017). Employees take part in all discussions and meetings, gathering together and exchanging opinions and comments that they have recorded in the process of their work. These notes are important, as based on them, employees are able to learn others’ opinions.
The company is also sensitive to corporate social responsibility and the environment. Over the years, Amazon has been working on conserving resources and helping to change the daily lives of people for the better. For example, it invests in forest and energy preservation.
Conclusion
Thus Amazon’s approach to its operations presents a clear vision of goals and strategies. In general, the company’s management may be evaluated as adequate yet not fully transparent. People at Amazon are valued and treated well to motivate them to achieve great performance, yet some cases of mistreatment also exist.
Amazon.com, the world’s largest online retailer, was founded by Jeff Bezos in July 1994. The company proposes a wide range of products, fast delivery, and great customer services. Nevertheless, despite its strong customer focus, the company’s management is widely criticised. The corporate culture of Amazon.com is based on scientific management and digital Taylorism (Stefanova 2015). This approach results in a negative company image and a loss of customers while affecting its competitiveness in the market. Therefore, it is important to examine management practices at Amazon.com and determine how it can apply more innovative management techniques to improve its competitive advantage.
Literature Review
To provide a complete picture, it is necessary to obtain information on both current practices of the company and innovative management practices which could potentially help Amazon.com to improve its competitiveness in the market. Innovative management is a specific approach to managing innovations in all corporate spheres, including the creation of new products and services, the work with customers, as well as the work with employees, to generate competitive advantage (Gureva et al. 2016). In this management approach, the focus is on using innovative techniques and new opportunities to achieve positive changes and contribute to the company’s growth (Ejdys, Ustinovičius & Stankevičienė 2015). It is important to study how innovative management can be applied to Amazon.com.
Currently, Amazon.com is focused on the application of other approaches which can affect the company negatively. The article by Kantor and Streitfeld (2015) provided details about the mistreatment of Amazon.com employees obtained from interviews and surveys. Stefanova (2015), on the other hand, provided an overview of the practices used by Amazon.com to manage its employees to increase competitiveness. The author explained the basic principles of scientific management and outlined its key benefits and difficulties, arguing that scientific management impairs collaboration in the workforce and affects the establishment of a positive team dynamic. However, for the case of Amazon.com, the substitution of scientific management with innovative management would offer a significant competitive advantage (Stefanova 2015).
Other articles explain the key ideas behind innovative management and provide a rationale for using it to alleviate management issues and promote a company’s growth. For instance, the recent study by Barnard and Van der Merwe (2016) focused on the implementation of innovative management practices in higher education institutions to improve student performance and engagement. This article applies to the proposed study because, with a high level of staff turnover, Amazon.com has on-going training practices in place to introduce new employees to their duties. In this case, applying innovative management practices would help ensure the effectiveness of training, thus promoting the effectiveness of the workforce. Furthermore, Amazon.com operates in an extremely competitive market in which each creative idea can be used to develop a product or service to attract customers.
The article by Sadriev and Pratchenko (2014) offered an introduction to idea management in innovative management practices. The authors explained the importance of idea management and provided an overview of practices for companies to use. Finally, the article by Nedelko and Potocan (2013) reported on a study of innovative management that aimed to outline the role of this approach in the development of novel working systems for organisations. This study applies to the proposed research as it shows how the use of innovative management techniques can align employees with the company’s vision and standards, improving both their engagement and effectiveness.
Research Question and Objectives
The research question for this paper can be formulated the following way: How can Amazon.com use innovative management practices and associated activities to increase its competitiveness? Objectives for the research should be identified to guide the study process:
to determine management practices which are currently used at Amazon.com to generate a competitive advantage;
to identify gaps in the current management practices which can influence the company’s competitiveness;
to propose innovative management practices to be used at Amazon.com;
to determine approaches to using innovative management practices and associated strategies at Amazon.com to increase its competitiveness.
Methodology
The case study based on analysing secondary data is selected as a research method. To complete the research objectives, it is necessary to focus on the explanatory case study analysis conducted for Amazon.com with reference to examining internal and external secondary data to find answers to the set research question. The case study based on secondary data is most appropriate for this research to address the formulated question and objectives. The reason is the necessity of analysing possibilities for applying innovative management practices at Amazon.com to increase its competitive advantage while evaluating the currently used managerial strategies and innovative techniques to replace the previously used strategies.
Internal secondary data to be collected for the case study will include the company’s reports, statistics, and other types of documents available online and in databases. External secondary data will include articles on innovative management practices to be used at Amazon.com, newspaper articles and other media sources, as well as scholarly investigations on the topic. The practical and ethical issues related to this study are associated with the accessibility of the required data. The publicly available information on management strategies used at Amazon.com will be accessed and analysed for this case study.
Reference List
Barnard, Z & Van der Merwe, D 2016, ‘Innovative management for organizational sustainability in higher education’, International Journal of Sustainability in Higher Education, vol. 17, no. 2, pp. 208-227.
Ejdys, J, Ustinovičius, L & Stankevičienė, J 2015, ‘Innovative application of contemporary management methods in a knowledge-based economy – interdisciplinarity in science’, Journal of Business Economics and Management, vol. 16, no. 1, pp. 261-274.
Gureva, MA, Kirillov, AV, Vinichenko, MV, Melnichuk, AV & Melnychuk, YA 2016, ‘Management of innovations and innovative process: concept, essence, classification and diffusion’, International Review of Management and Marketing, vol. 6, no. 6, pp. 147-153.
Nedelko, Z & Potocan, V 2013, ‘The role of management innovativeness in modern organizations’, Journal of Enterprising Communities: People and Places in the Global Economy, vol. 7, no. 1, pp. 36-49.
Sadriev, AR & Pratchenko, OV 2014, ‘Idea management in the system of innovative management’, Mediterranean Journal of Social Sciences, vol. 5, no. 12, pp. 155-158.
