Category: Amazon

Executive Summary

Amazon offers a variety of services and products, and it can be considered a company with extensive resources and capabilities. One of the areas that it is interested in is the tablet market. Currently, Amazon sells six models of tablets, three of which are sold as child-friendly devices. An analysis of the target consumer groups reveals that children and media consumers are the two main categories that Amazon considers as potential customers. Moreover, Amazon differentiates its tablets from those of competitors by building a relationship with its customers that lasts beyond the purchase of a tablet. The devices’ original operational system, original applications, and access to Amazon goods and services create a framework in which Amazon customers are encouraged to remain. Combined with low prices, Amazon Fire tablets occupy a niche that is different from expensive Apple and Samsung products. However, as the tablet market’s size continues to fluctuate, Amazon’s tablets are losing their appeal. The primary recommendation for Amazon is to update the software and hardware of its Fire tablets, which should help retain the attention of its target audience and open new possibilities for market growth.

Introduction

Amazon is a company that currently operates in multiple industries, delivering both physical products and services to its customers. The CEO of the organisation, Jeff Bezos, continues to support innovations that have allowed Amazon to compete with major firms in the areas of retail, music and video streaming, and others (Gershgorn et al. 2017). Moreover, the business continues to focus on areas whose future remains unclear to many analysts (Detachable tablets return 2018). In particular, one can look at the tablet market and the public’s continuously changing interests in the range of tablet devices.

Historically, most technology manufacturing companies have not started their businesses with tablets or e-book readers as the basis of their product lines. Amazon, a company that gained popularity as a seller of books, saw an opportunity to advance its services with the help of book digitisation, thus leading to the creation of a new sector – e-books (Sawhney, Owens & Goodman 2014). Later, the competition with other book stores and an investigation into customers’ needs encouraged Bezos to introduce another type of device – the Kindle Fire, later renamed as the Amazon Fire tablet. In contrast to the previous concept of an e-book reader, Amazon Fire tablets have a broader range of capabilities, allowing their owner to browse and access the vast selection of books, movies, television shows, and games provided by Amazon.

Currently, Amazon offers six main versions of its tablet, with three of the models targeting children. The most basic product is the Fire 7, and its price usually remains under $50 (Fire tablets 2019). Other options are not much more expensive, as all are priced under $200 (Fire tablets 2019). The company’s vision for the market seems apparent and Bezos’s strategy for selling tablets is quite clear. This report aims to analyse the state of the tablet market and Amazon’s place in it in order to make recommendations for the future of the Amazon Fire.

Analysis

External Environment

To understand how the popularity of the Amazon Fire can stay so high, one has to consider who is purchasing these tablets and what functions tablets as a whole, and the Fire, in particular, have. Tablets fall into a niche between phones and personal computers (both stationary types and laptops) in their dimensions, functionality, and portability. Therefore, the users of these devices have to have a desire to purchase a tablet apart from or instead of a computer and a phone. A customer profile map can be useful here to discuss what characteristics potential target groups have. As Sawhney, Owens and Goodman (2014) find, three main categories can be considered in the case of the Amazon Fire – media consumers, children, and students. One can see that the demographics of the clients vary significantly. The Amazon Fire is appealing to people of different ages and genders, with a variety of occupations, hobbies, and likes. However, their unifying factor is an interest not in hardware, but in various forms of media.

First of all, people who read books and comics or watch shows, cartoons and movies are asking a company to provide them with a mobile device that is also functional and powerful. They also expect a long battery life, access to all resources for media consumption, and considerable storage capacity. Furthermore, the tablet itself has to have graphics capabilities and a screen that makes movie watching an enjoyable experience. These people may be young or old, but their average time in front of the screen is usually high. Moreover, because these consumers need to have access to many types of media, they expect the tablet to have a library with a large selection of options. Finally, they likely want an affordable product that also has exclusive deals in the form of sales, low prices, and subscription services. It should be noted that this demographic category is currently one of the largest consumers of tablets and similar devices since video and music streaming are continuing to grow in popularity (Tsukayama 2018). The majority of competitors in the market prioritise this group’s interests.

The next type of consumers is comprised of children, although all purchasing decisions are made by their parents. In this case, the primary requirement is the low price since parents are hesitant to buy expensive technology for children who may damage the device easily (Tsukayama 2018). The next qualification which is based on the same explanation is durability. Finally, the media access that the tablet provides is also essential. A simple interface, a variety of games, and potential for educational materials are valued by these clients.

The last group of customers that tablets may appeal to are students of higher education. According to a case study, academic books are heavy and expensive, thus making the idea of e-books and other digital educational materials seem beneficial for learners (Sawhney, Owens & Goodman 2014). Nonetheless, this community seems to be less targeted by tablet sellers in comparison to the previous two categories. It is possible that students’ needs are not being addressed by companies because their use of tablets often overlaps with that of media consumers.

Analysis of Amazon’s Strategy, Resources and Capabilities in the Tablet Market

An evaluation of the potential customers in the tablet market illustrates the first part of the Value Proposition Canvas. Clients’ jobs, pains, and gains are explored for two main sectors, media consumers and children. Thus, one can investigate how Amazon’s current strategy adheres to these descriptions. Considering the range of products that Amazon currently offers, one can see a strong focus on the second group discussed, children. Three of the six Fire models are produced for younger customers, and their hardware and software are designed with a child user in mind. For example, these tablets have a special plastic case that makes the device easy to hold, responding to the first pain – the risk of breakage – and fulfilling the need for durability (Fire tablets 2019). Moreover, Amazon supplies these models with a two-year guarantee that is twice as long as the longest extended warranty for other tablets.

The contents to which the children using these tablets have access are limited as well. Young users are prevented from seeing potentially harmful, explicit, or otherwise inappropriate materials. It should be noted separately that these services are offered for free for one year after the purchase of a tablet. It is a feature that separates Amazon’s approach to the market from all others. Here, the critical specification is the fact that Amazon has the resources to provide its customers with this possibility. Amazon is attempting to gain a share of multiple markets, including not only tablets but also services and storage provision. When children use an Amazon Fire, they also utilise a selection of Amazon-provided books, games, movies and applications. After the FreeTime Unlimited offer comes to an end, customers can pay for these features to stay unlocked or purchase a new device, thus prolonging the customer-company relationship (Fire tablets 2019). As a result, Amazon retains clients by engaging them in a network of services and simplifying access to products through a single unified source.

The analysis of the second customer group reveals a similar strategy for Amazon. Tablets that are not targeted at children are equipped in a similar manner, with a number of small changes. These models come with the same specifications, including storage capacity, screen resolution, and display size. However, each of these tablets is $50 cheaper than its child-friendly analogue (Fire tablets 2019). Moreover, these standard models come equipped with Alexa, Amazon’s voice-activated assistant. The addition of Alexa to Amazon Fire tablets is significant since it differentiates these devices from those of competitors. By including the assistant and simplifying its voice activation, Amazon has created a portable variant of its other products, such as the Echo (Tsukayama 2018). While Echo, Echo Dot, and other products with Alexa have to be placed in one room, a tablet can be carried everywhere, potentially allowing the customer to never lose contact with Amazon.

Apart from watching movies or listening to music, people can use Fire tablets to shop at Amazon quickly and easily. In this case, both Alexa and other installed applications contribute to increased purchasing. It can be observed that Amazon is aiming to build a network that customers will not want to leave. Fire tablets expand this possibility by offering instant access to the media shop as well as the rest of Amazon’s wares.

Access to a media library fully monitored by Amazon also ensures that the tablet owner will consume other products from the company. Here, one can see how Amazon’s strategy was designed. Fire tablets are much cheaper than those offered by other manufacturers. For comparison, the most expensive standard Fire HD 10 model is $149.99, while Apple’s cheapest tablets start at $329 in the US (iPad 2019). This price difference is substantial for many customers, and Amazon uses this tactic to target groups that Apple cannot. Apple and Amazon place their tablets in separate niches, and Bezos’ aim is not to compete with Apple on the same turf but to support market segmentation and assume control of a single area. Thus, apart from offering a unified Amazon-based experience with a library and unlimited access to media, Amazon Fire tablets also use their pricing as leverage to attract clients with lower incomes.

Overall, Amazon’s strategy strongly relies on continuous interaction with its customer base. The tablets are inexpensive because their purchase is only one of the steps that Amazon hopes its customer will take. This represents both a strategy for Amazon and a point of appeal for customers. People who already pay for Amazon Prime, purchase goods from the store, or read e-books on the Kindle app may choose to pay for a Fire tablet because they are well acquainted with the company’s other offerings. Moreover, parents are more likely to choose Amazon’s tablets over other models since these tablets are specifically designed to be durable and functional while retaining their low price. Using the VRIN framework, one can see that Fire tablets are valuable since their price is much lower than competitors’ models, although the specifications and abilities are similar or not substantially worse (Lin & Wu 2014). While they are not rare or non-substitutable, Fire models can be considered inimitable in their integration with other Amazon services. The competitive advantage of Fire tablets is not the highest, but Amazon has an opportunity to preserve its place in a declining market.

Growth Options and Recommendations

Analysis of Amazon’s Growth Options in the Tablet Market

At the present time, the tablet market is undergoing significant changes. The number of people who purchase new tablets is declining since most customers are choosing large smartphones or laptops (Tsukayama 2018). However, several companies continue to divide market share in this segment among themselves, with Apple holding an undisputable leading position and Samsung, Huawei, Lenovo, and Amazon competing with each other (Strategy Analytics 2018). According to the latest results, the share of Amazon’s tablets has dropped significantly, which means that its current strategy needs improvement. In order to expand its influence in the market, Amazon can consider multiple approaches for the next five years. First of all, Amazon can try to address new customer segments. Students and employees whose workplaces are following the ‘Bring Your Own Device’ (BYOD) trend may influence the way Amazon interacts with its customers.

In the case of students, the nature of this demographic segment implies that tablets will be used not only for entertainment purposes, but also to access school books, articles, documents, and other necessary files. The Amazon Fire already has an assortment of books, but its functionality and interactivity for professionals are lacking. By introducing software that helps students learn, Amazon can expand its reach. Similarly, many companies are now allowing their workers to bring their own devices to work and use them for presentations, note-taking, and other purposes. Tablets may be more suitable for these tasks than other devices. Phones are strongly connected to personal communication, and their small screens and lack of ports may present an obstacle to convenience for professional work. Laptops and stationary computers are bulky and too unwieldy to hold in one hand. Tablets with their long battery life can be helpful for medical and office workers, and Amazon can use its Alexa integration for providing project planning and group work.

A second option is to offer a new value proposition without changing the price range. Consumers of media, who comprise Amazon’s current focus, want to have a tablet that is functional enough to provide the best entertainment quality. However, both the hardware and software of Fire tablets are less advanced than those of the iOS and Android counterparts. For example, two of the models do not have an HD screen which may be essential for people who use Fire tablets for watching films and television shows. Only the most expensive options have full HD resolution, which is becoming a standard for most video-watching experiences. Furthermore, the sound quality can be upgraded for similar reasons. In order to attract gamers or expand the library of children’s games, Amazon should improve the graphics capabilities of its tablets. A long-lasting battery is another function that is always positively viewed by customers. Overall, the hardware specifications are the main value that can attract more people to choose Amazon tablets over its competitors.

In regards to software, Amazon’s focus on its own products has resulted in a tablet with limited capabilities. In contrast to tablets designed for iOS and Android, Fire tablets do not have the same variety of applications, which may be a negative feature for people who search for books and films not featured on Amazon. Moreover, people who use their devices for social media, communication, work, or education may also choose other tablets since Amazon’s store does not receive the latest updates as soon as other platforms.

The disadvantages discussed above can also be resolved with new partnerships. Amazon can work with other hardware and software companies to update the technical contents of its tablets. Other companies are moving towards better screens, faster response times, and larger media libraries. Amazon does not need to disregard its existing models, but it does need to offer some variations that have better specifications, especially if other developers provide the components. Collaboration with a firm that produces software for medical workers, businesspeople, or engineers, for example, can lead to an expansion of the target audience and raise the sales of tablets with new features. Each of these partnerships represents the potential for growth, and Amazon can choose to pursue one of them in order to occupy a particular place in the market.

The BYOD trend requires device manufacturers to review their offerings and provide new solutions that are focused not just on entertainment, but on business purposes as well. Apple already uses this approach by marketing its tablets as perfect for working professionals. Amazon can capitalise on its price strategy and cover the segments where Apple is thought to be too expensive. A partnership with app developers is a step towards overcoming the problem of limited capabilities.

Recommendation for a Strategic Approach

In order to decide which of the growth options is the most promising, one can use a framework referred to as the three horizons of growth. This is a system based on the belief that companies should be able to maintain three levels of projects in order to innovate sustainably (Baghai, Coley &White 1999). The first level focuses on existing core ideas and features, the second one considers new developments and the final horizon centres on bold new ideas (Baghai, Coley &White 1999). According to this approach, the company should focus on improving its current products and devote less time and effort to drastic changes, while not ignoring them completely, however. The second solution, offering new value propositions, seems to align with this framework the most. By updating its hardware and software, Amazon may meet multiple goals which then may be complemented by other growth options in the future.

Thus, the first step that Amazon should take is to review its current range of tablets and see which of their specifications can be improved. These may include the devices’ design, screen resolution, viewing quality, response speed, or battery capacity. Then, the company should work to adjust these characteristics and analyse how any changes may affect the final price range of its tablets. As a result, these improvements may attract new customers and allow Amazon to start working on expanding its customer reach and potentially collaborating with other developers to deliver new tablet versions for professionals.

Conclusion

This case study of Amazon Fire tablets shows that the market for these devices is competitive and unstable. The purpose of these devices is changing as the ways in which media is consumed evolve, and companies are struggling to find a balance between improved capabilities and low prices. Amazon’s share in the market has decreased, but its pricing still attracts many customers. The main recommendation that follows the analysis of Amazon’s current strategy and resources is to update its software and hardware to appeal to its main client segments, media consumers and children.

Reference List

Baghai, M, Coley, S & White, D 1999, The alchemy of growth: practical insights for building the enduring enterprise, Perseus Books, Reading, MA.

Detachable tablets return to growth during the holiday season as slate tablet decline continues, Web.

Fire tablets 2019, Web.

Gershgorn, D, Griswold, A, Murphy, M, Coren, MJ & Kessler, S 2017, ‘What is Amazon, really?’, Quartz, Web.

iPad 2019, Web.

Lin, Y & Wu, LY 2014, ‘Exploring the role of dynamic capabilities in firm performance under the resource-based view framework’, Journal of Business Research, vol. 67, no. 3, pp. 407-413.

Sawhney, M, Owens, JR & Goodman, P 2014, Kindle Fire: Amazon’s heated battle for the tablet market, Web.

Strategy Analytics: Apple, Huawei, Microsoft take 40% share of ultra-competitive tablet market2018, Web.

Tsukayama, H 2018, ‘Why Amazon keeps making tablets when the market has been struggling’, The Washington Post, Web.

On February 3, 1999, Amazon sold Amazon.com Inc., the online retailer, sold $1.25 billion of convertible subordinated 10-year debt to institutional investors.

Was this debt secured or unsecured? Is it senior or subordinated debt? What are the bond’s maturity and coupon rate? Does it have any early repayment option? If the bonds have a call feature, what is the call price?

Amazon.com sold $1.25 billion of convertible subordinated 10-year debt that was unsecured (Annual Report – Amazon.com). The company issued subordinated debt that was “subordinated to all existing and future Senior Indebtedness” (Annual Report – Amazon.com). The debt was issued with a 10-year maturity and the coupon rate was 4¾% (Annual Report – Amazon.com). The convertible subordinated notes were issued with an early redemption option.

The early redemption option permitted the company to redeem the entire or a part of the debt before February 6, 2002. The call price of the redemption option was “$212.60 per $1,000 note redeemed” (Annual Report – Amazon.com). The call price was calculated after deducting the amount of interest already paid by the company before it calls for redemption (Annual Report – Amazon.com).

If the debt is convertible, what is the conversion price?

The conversion price was $78.0275 per share (Annual Report – Amazon.com).

Why did it make sense for Amazon to issue convertible bonds?

Amazon.com issued convertible bonds to take advantage of the low coupon rate that investors were willing to accept due to the convertible option. The investors were keen to invest in the company’s debt because they believed that the company would outperform the performance benchmark set out by Amazon.com. Therefore, it was feasible for Amazon.com to issue convertible debt rather than borrowing from a bank or issuing regular bonds.

In December 2014, Amazon issued $6 billion of notes. It’s the firm’s largest bond offering to date. The offering has 5 parts: $1.5 billion portions of 4.95 percent, 30-year bonds; equal $1.25 billion parts of 3.8 percent, 10-year notes, and 4.8 percent, 20-year securities. The company also sold equal $1 billion pieces of 2.6 percent, five-year debentures, and 3.3 percent, seven-year obligations.

What is amazon’s capital structure like at the end of 2015? Specifically, what is the total amount of debt? What is Amazon’s D/V ratio or D/E ratio?

Amazon’s capital structure after it issued $6 billion of notes is determined in the following.

Current Debt = Nil (Amazon.com Inc.)

LT Debt and Capital Lease Obligation = $8,227.0 million (Amazon.com Inc.)

Total Debt = $8,227.0 million

Equity = $13,384.0 million (Amazon.com Inc.)

Debt to Equity Ratio (D/E) = Total Debt / Total Equity

D/E = $8,227.0 million / $13,384.0 million

D/E = 0.62

The value indicated that the company had $0.62 of debt for each $1 of equity. Although the value of the D/E ratio was less than one in 2015, the company could be considered as a highly leveraged company, and it should take steps to reduce its debt.

Assuming that Amazon’s $6 billion debt is not perpetual and that the corporate tax rate is 35%. Given the bonds’ interest rates, how much value does Amazon’s $6billion debt add to the firm? In other words, what is the present value of the tax shield generated by the debt issuance?

The tax shield for each part of debt issued by Amazon is calculated in the following table.

Table 1. The present value of the tax shield.

The total present value of the tax shield generated by the debt issuance was $917.489 million, which represented the value added to the firm.

In the framework of trade-off theory, do you think Amazon has too much debt? Can you increase Amazon’s value by changing its capital structure?

The trade-off theory states that the optimal level of leverage depends on the analysis of costs and benefits associated with extra borrowing. The companies should balance these costs and benefits to increase the firm’s value. The benefits of borrowing include a tax shield that companies receive from interest payments deductible from the operating profit before tax is calculated. It could be noted that Amazon did not have current debt in 2015 (Amazon.com Inc.).

Moreover, the value of the D/E ratio was less than one. The company could borrow more to take advantage of the tax shield. If the company increases its debt, then the company’s value will increase by the present value of the tax shield. However, it could be stated that the marginal benefit of additional borrowing will eventually decline and the firm’s value will not increase any further.

Works Cited

“Annual Report – Amazon.com.” Windows Server – Internet Information Services, 2000. Web.

“Amazon.com Inc.” MSN, 2016. Web.

Introduction

Many companies use powerful models and strategies to deliver high-quality products and services to their customers. Amazon focuses on powerful initiatives and practices that can promote performance and improve customer satisfaction. This paper gives a detailed analysis of the organization’s market share and pricing decisions.

Market share

Every industry has its leading players or competitors. Each company has its market share and strives to maximize it using evidence-based strategies. Izogo and Ozo (2015) define it as the representation of what a specific organization earns in a particular sector over a specified period. Analysts can use total sales to calculate the market share of a specific business.

Amazon’s Market Share

Amazon’s original business model revolves around the concept of an online bookstore. The introduction of new tactics has made it a leading competitor in the United States’ e-commerce sector. Since many people are embracing online transactions, chances are high that Amazon will remain a dominant player in its industry. Currently, it commands a total market share of 49.1 percent of the country’s e-commerce sector (Lunden 2018). Its closest competitors include eBay, Apple, and Walmart. These companies have market shares of 6.6%, 3.9%, and 3.7% (Lunden 2018). Other key players in the sector include Best Buy, QVC Group, Macy’s, and The Home Depot (see Figure 1). In the wider retailing industry, Amazon has a share of 5 percent (Lunden 2018). This is the case since Walmart and Best Buy use physical stores and outlets across the US to increase sales.

Losing Market Share

The presented case study reveals that Amazon is currently losing its market share in e-book retailing. This is the case since new competitors have emerged that are providing similar services at reduced prices. This development means that Amazon should be concerned since it stands a chance to become less profitable. Emerging competitors provide different platforms that are accessible and affordable (Lunden 2018). With this kind of knowledge, Amazon needs to develop a superior model for attracting more customers, revisiting its prices, and diversifying its e-books in order to remain competitive.

Amazon’s Pricing Decisions: Implications

Due to the increased pressure from publishers, this company chose to increase its prices for various e-books and other digital content (Weise 2019). Although its sales for different products still remain high, Amazon’s pricing decisions might present negative effects despite its enjoyable market share. Firstly, such an initiative means that the company has to consider the bargaining power of different suppliers and publishers. The emergence of new competitors providing such products at reduced costs will result in reduced market share (Robischon 2017). Secondly, the pricing decisions are unsustainable and incapable of addressing customers’ demands.

Thirdly, the instability of this company’s prices means that different customers might opt for other e-retailers and providers of digital content (Demir 2017). This development will result in reduced sales, thereby affecting profitability. Since its prices are still low in comparison with those of its key competitors, chances are high that Amazon will still remain profitable. It would, therefore, be appropriate for this corporation’s leaders to consider the trends recorded in the e-commerce sector and develop an evidence-based pricing strategy that can reduce the level of rivalry.

Conclusion

The above discussion has revealed that Amazon is a leading player and competitor in the American e-commerce industry. Unfortunately, its pricing strategy remains unstable and incapable of meeting the changing needs of all potential customers. A superior model is needed to transform the situation and ensure that this company remains competitive.

Reference List

Demir, A 2017, ‘Management information system: case study of Amazon.com’, Journal of Research in Business and Management, vol. 4, no. 11, pp. 11-17.

Izogo, EE & Ozo, JU 2015, ‘Critical evaluation of how well placed Amazon is to sustain its historical in online retailing’, British Journal of Marketing Studies, vol. 3, no. 6, pp. 31-42.

Lunden, I 2018, ‘Amazon’s share of the US e-commerce market is now 49%, or 5% of all retail spend’, Tech Crunch, Web.

Robischon, N 2017, ‘Why Amazon is the world’s most innovative company of 2017’, Fast Company, Web.

Weise, K 2019, ‘Amazon knows what you buy. And it’s building a big ad business from it’, The New York Times, Web.

About Organisation

Amazon is a Seattle-based Fortune 500 company that was founded in 1994 by Jeff Bezos and launched the next year. Back in the day, the company has become one of the first large Internet sellers. Looking at the industry giant that Amazon has grown to be over the last 25 years, it is difficult to believe that the business had humble beginnings. It started as an online book store; however, thanks to Jeff Bezos’ thoughtful guidance, the range of goods offered on the platform was quickly diversified (Rossman, 2016). Soon, Amazon’s customers were enjoying DVDs, electronics, video games and clothing. In 1998, Bezos became Time’s “Person of the Year” for his contribution to online shopping. The client’s interests take front and centre of the company’s strategies which capitalise on using every opportunity to harness the unprecedented tech revolution. The passion to serve the customer and gain a competitive advantage over numerous contenders was the impetus to innovation and resulted in the creation of such products as Alexa, Dash Button and Amazon Prime (Robischon, 2017).

About Decision

On the 2nd of February 2005, Jeff Bezos and the team launched a service that set the bar for the entire industry, Amazon Prime. Initially, it was designed as a paid subscription service that allowed users to gain access to services and benefits that would otherwise be unavailable or require an extra payment (Consumer Reports, 2019). For two years, from 2005 to 2007, Amazon Prime offered two-day free shipping for a flat annual fee exclusively to the United States citizens. As the popularity of the service was tested in the domestic market, Bezos embarked on aggressive expansion politics. The CEO of Amazon followed through with his plans and launched the product in the United Kingdom, Germany and Japan in 2007. By 2008, the service emerged on the French market under the name “Amazon Premium” and reached Italy by 2011. Canadian citizens got to enjoy fast shipping in 2013, whereas India and Mexico joined in 2016 and 2017 respectively (Statista, 2019).

During the 2010s, the company made available a monthly subscription so that potential customers could check the perks of the service before making a year-long commitment. Amazon diversified the range of products under the Amazon Prime brand, adding Prime Reading with access to Kindle library and Amazon now with one-to-two hour delivery in New York. The success of Bezos’ decision back in 2005 gets continuously proven by hard data. Between 2016 and 2018, the number of Amazon Prime subscribers almost doubled: from 54 million to 100 million users (Statista, 2019). According to some reports, in 2016, half of United States households used the services offered by Amazon Prime (Statista, 2019).

Key Conclusions

Amazon is a company that prioritises innovation and takes customers’ changing expectations into consideration. Since 1994, the company has been revolutionising the logistics industry and the world of online shopping. Amazon owes its rise to its true visionary and genius business mogul Jeff Bezos who was the heart and the mind behind many new products and services. Amazon Prime is arguably one of the most successful ventures that the company has ever undertaken. As of now, the service is used by a whopping 100 million users worldwide, and the company is actively expanding the product’s geography.

Outline

This paper aims at investigating the process behind the creation of Amazon Prime. All claims and conclusion will be supported by data from official books about the company’s history, the founder’s interviews and relevant statistics. The first part of the body of this essay will focus on explaining the decision making process from the standpoint of the company’s vision. The second part will discuss the external and internal factors that pushed the company to pursue this goal. To attain this, Porter’s Five Forces Model will be applied.

The Decision Making Process

Stakeholders

In 2005, the launch of Amazon Prime was meticulously planned by a talented team under Bezos’ guidance. The names behind the world’s popular shipping service were all employees that joined the company early on, shortly after it was founded, and grew to be officers and directors. To name a few, Stanford’s School of Business graduate, Blackburn became part of the team in 1994 and was Vice President, Business Development, at the time Amazon Prime was in the making. Some other people who made it happen were Harvard Business School’s Rassy, CEO of Amazon Web Services and Princeton University’s Wilke, Senior Vice President of Worldwide Operations. All these people were united by the shared vision and the desire to change the very phenomenon of online shopping.

Bezos’ Way

The CEO’s right hand, Dalzell, reported that Bezos was always exceptionally good at doing two things: accepting that the truth is ever-changing and refusing conventional wisdom when it comes to business (Majia, 2019). Amazon Prime was the product of its time: it answered the questions that customers used to have in the 2000s: they were concerned about a delivery, safety and confidentiality. At the same time, Bezos was well-aware of the fact that while in 2005, Amazon met the buyer’s needs perfectly, it could no longer be true in the matter of as short as one year. Hence, he knew that the value that he could put into the product was not set in stone, and Amazon Prime would have to evolve constantly to stay afloat. As for the second claim, Amazon’s CEO wanted to surpass people’s expectations. As online shopping only embarked on the world conquer, Bezos was ambitious enough to offer a flat annual fee – and a fairly affordable one.

Interestingly enough, Bezos relied heavily on intuition on par with hard data. As he describes his approach to decision making today, it is a combination of a gut feeling and research. One should also add the ability to take time and be patient to the mix: Bezos jokingly calls himself “chief slow down officer (Weil, 2015, p. 106).” For his company, the CEO distinguishes between reversible and irreversible decisions, and something as disruptive for the entire industry as Amazon Prime belongs to the second category (Sumner-Rivers, 2015). If for smaller decisions, it is enough to have 70% of data, Amazon Prime required 90%. Perfection was unattainable: as Bezos admits, data is unable to bring one closer to the solution, if the end goal is to build something that has never been built before.

Institutional Analysis

The institutional theory encompasses a broad range of concepts that help to understand the complex nature of social institutions be it formal or informal, state or private (Wendt, 2016). In relation to businesses, the institutional analysis might explain how policies are implemented and decisions are made. In the case of Amazon, the layout of the institutional model might look as follows (Fig. 1):

Internal and External Factors and Power Relations

Now that the decision to launch Amazon Prime is defined as irreversible, disruptive and groundbreaking, it is critical to analyse key internal and external factors that contributed to the change. Each company exists in the context of its time, and at times, it is challenging to explain how exactly inner power relations and the specifics of the business environment impacted its development. To make the case of Amazon more clear in relation to the outlined issues, Porter’s Five Forces model will be applied to discuss five key aspects (industry competition, new entrants, suppliers, customers, the threat of substitute products) (Dobbs, 2014).

Competition of the Industry

The key statistics required for analysing the competition of the industry is the number of other contenders given that they can stand comparison and are equally influential (Dobbs, 2014). A company that is one of a kind in the respective market niche has more leverage and leeway to take risks and make irreversible decisions. If it is not the case, every rushed or poorly planned decision can be detrimental to a company’s status and ranking since competing businesses grow and develop simultaneously.

All of Amazon’s key contenders acquired power by taking advantage of the developing niche of online shopping and the absence of well-established companies with a worldwide presence. First, Alibaba, a China-based online retailer founded four years after Amazon, was becoming stronger. In 2005, Alibaba entered a strategic partnership with Yahoo, hence, gaining access to the American market and at the same time, taking control of China Yahoo’s domestic operations (Erisman, 2015). In 2004, Amazon bought Joyo for $75 million; the largest online sellers of books and electronics, Joyo was supposed to solidify Amazon’s presence in China. As time showed, the strategic purchase of Joyo was not worth the expenses as in the next ten years, it only accounted for 0.7% of online sales (Zhu & Liu, 2018). Amazon’s main competitive advantage back then was its fuller range of goods and utilities as compared to Alibaba.

In the 2000s, eBay was doing extraordinarily well, which could also pose a threat to Amazon’s influence on the market. Around the years 2002-2003, both Amazon and eBay made power moves that showed that they were industry leaders to be reckoned with. Amazon was the first player in the game to introduce one click-purchase, making online shopping easier. EBay purchased PayPal and then went even further by buying iBazar, a European e-commerce platform (Zhu & Liu, 2018). Amazon was yet to tap into the European market, but at the time, focusing on the US customers’ needs made more sense.

Lastly, for Walmart, a Mexican retailer, the 2000s were marked by the launch of an online shopping platform. Shortly before that, Walmart topped the Fortune 500 ranking and was overall a more recognisable brand than Amazon due to its long history dating back to the 1960s (Brea‐Solís, Casadesus‐Masanell, & Grifell‐Tatjé, 2015). Moreover, Walmart introduced a new service, site-to-store delivery, so that clients could pick up their orders right from the store (Zhu & Liu, 2018). Target, on the other hand, despite being one of the first and largest retailers in the United States, was not successful in bringing its business online. Even though it 2001 initiative that allowed customers to register gift cards on the Internet gained some traction, the online sales never amounted to any significant share of all sales (Zhu & Liu, 2018).

Potential of New Entrants into the Industry

Some industries are more accessible; some, however, have strong barriers that a young company might find insurmountable. A new entrant might gain power by providing a viable alternative – a disruptive product or service – that weakens older companies’ positions (Chang & Wu, 2014). In 2005, Amazon was in luck: despite having to compete against other companies, it did not need to face any powerful entrants. To make the analysis more robust, the years 2003 through 2005 were investigated to find out whether any large retailers started around that time. Only around one-third of the 2003-2005 newcomers were US-based, and none of them offered such a variety of goods as Amazon did. Moreover, the majority of the new entrants did not have an online presence, relying on physical stores. Hence, Amazon’s timing was incredible: the company enjoyed the absence of new competitors and created something that its contenders had not yet conceived.

Power of Suppliers

By 2005, Amazon had expanded the variety of goods and utilities significantly and enjoyed popularity among the United States customers. To launch Amazon Prime, given the relatively low subscription fee, the company needed to be sure that it will be able to maintain and increase sales. As an online retailer, Amazon relied heavily on suppliers, and back then, since online shopping was in its early stage, they were sought after and could make their own rules. Jeff Bezos was aware that retaining and enhancing the diversity of the stock would require being compliant with third-party sellers and manufacturers. At the same time, by the early 2010s, the company already attracted more than 400 suppliers, which made the business relationships more equal and two-sided (Sumner-Rivers, 2015). Therefore, Amazon could rely on the power of suppliers as much as they could rely on the platform that presented so many opportunities and favourable terms.

Power of Customers

A client base can dictate its own rules when it comes to pricing and other business strategies. The smaller the number of customers is, the more power each of them has individually. Again, when it comes to this aspect of Porter’s Five Forces, Amazon was in a good position. First, it had enjoyed a steady increase in the number of customers over the last few years before the launch of Amazon Prime (Winn, 2016). Online shopping was only gaining popularity, and some people were still wary of its seemingly complicated mechanics (Folinas & Fotiadis, 2017). Amazon was competing with Chinese and Mexican-based companies, and yet, as an American business, it seemed more reliable and familiar to many buyers. Second, the growing interest in making purchases online was benefitting online retailers in general. In 2005, online shopping grew by a whopping 33%, which was especially tangible during the holiday season (LeClaire, 2005). Lastly, customers who were getting used to Internet stores started increasing their expectations on prices and shipping (Lewis & Dart, 2014). All in all, Amazon took advantage of its reputation, overall business environment and clients’ wishes when introducing Amazon Prime.

Threat of Substitutes

If a client relies on a company to acquire a good or a service, but later, a competitor offers something similar on better terms, a substitute might pose a threat to the first company’s position. As it appears to be, in 2005, Amazon Prime was one of a kind worldwide or at least, in the United States. While Alibaba, eBay and Walmart were offering great deals in terms of goods’ range and prices, Amazon stood out by introducing a flat annual fee. Moreover, given the state of logistics in the 2000s, two-day shipping within the US was innovative (PwC, 2016).

Conclusion

Amazon is one of the world’s largest online retailers that enjoys increasing sales and customers’ loyalty and in return, offers innovative products and services. Amazon Prime was by far the best business decision that Jeff Bezos ever made, and back in 2005, it was a service that answered the challenges of its era. Jeff Bezos and other stakeholders that had been working for Amazon since its foundation relied both on hard data and intuition. While the numbers and figures hinted at the benefits of launching Amazon Prime, such a decision posed some risks due to uncertainty and irreversibility. Within the institutional theory, the following three components contributed to the launch of Amazon Prime: values (innovation and customers’ satisfaction), business ethics and established relationships with suppliers and clients. According to Porter’s Five Forces, Amazon had serious competitors but no new entrants to pose a direct threat. Suppliers had an impact on Amazon’s strategies, but the business did not rely on each of them individually. Around that time, customers just started trusting online shopping and raising their expectations, and Amazon Prime was in line with them. Overall, it was a unique product with no available substitutes, which fully justified Amazon’s decision.

References

Brea‐Solís, H., Casadesus‐Masanell, R., & Grifell‐Tatjé, E. (2015). Business model evaluation: Quantifying Walmart’s sources of advantage. Strategic Entrepreneurship Journal, 9(1), 12-33.

Chang, S. J., & Wu, B. (2014). Institutional barriers and industry dynamics. Strategic Management Journal, 35(8), 1103-1123.

Consumer Reports. (2019). Pros and cons of Amazon Prime.Web.

Dobbs, M. E. (2014). Guidelines for applying Porter’s five forces framework: A set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Erisman, P. (2015). Alibaba’s world: How a remarkable Chinese company is changing the face of global business. New York, NY: St Martin’s Press.

Folinas, D., & Fotiadis, T. (2017). Marketing and supply chain management: A systemic approach. Abingdon, UK: Routledge.

LeClaire, J. (2005). Online shopping grows 33 percent in 2005.Ecommerce Times. Web.

Lewis, R., & Dart, M. (2014). The new rules of retail: Competing in the world’s toughest marketplace. New York, NY: St Martin’s Press.

Majia, Z. (2018). Amazon’s Jeff Bezos: This simple framework can help you answer the most difficult questions you face.CNBC. Web.

PwC. (2016). Shifting patterns. The future of the logistics industry.Web.

Robischon, N. (2017). Why Amazon is the world’s most innovative company of 2017. Web.

Rossman, J. (2016). The Amazon way: 14 leadership principles behind the world’s most disruptive company. Bellevue, WA: Clyde Hill Publishing.

Statista. (2019). Amazon Prime – Statistics & facts.Web.

Sumner-Rivers, R. (2015). Amazon’s Prime ambition.Parcelhero Industry Report. Web.

Weil, J. (2015). Jeff Bezos: Founder of Amazon.com. Edina, MN: ABDO.

Wendt, C. (2016). Max Weber and institutional theory. Berlin, Germany: Springer.

Winn, J. K. (2016). The secession of the successful: The rise of Amazon as private global consumer protection regulator. Arizona Law Review, 58.

Zhu, F., & Liu, Q. (2018). Competing with complementors: An empirical look at Amazon.com. Strategic Management Journal, 39(10), 2618-2642.

E-books have become a potent force in the publishing market due to the advancement of technology and the numerous advantages they offer. They are easier for publishers to produce in significant quantities and for consumers to obtain and use. Amazon has contributed considerably to the trend by launching its Kindle product line, which disrupted the existing situation and made the technology more popular. Nevertheless, many people still prefer physical books, which the corporation also sells, for a variety of reasons. Despite the long history and numerous advantages of digital print, it does not dominate the market. This essay investigates the differences between the two categories of buyers using a customer-delivered value framework.

The concept of customer-delivered value is frequently used to evaluate the popularity of a product with consumers. According to Ike (2018), it is the difference between the perceived worth of the offering to a prospective buyer and the costs associated with purchasing it. There are four definitions of value as seen by a person: low price, matching specific needs, the quality to cost relationship, and the overview of benefits gained compared to those given (Ike 2018). The analysis will examine the attitudes of consumers of both categories with regards to each of the metric and determine the factors that drive them to display their preferences.

E-books are convenient for portable electronic device owners, a category that encompasses most Amazon users. They are cheaper than physical books, a trait that can be seen in the statistics provided by Reddy and Reinartz (2017), where a higher number of digital books generated less sales revenue. The books match the need for easy and portable access as well as search and suggestions (Baye, Santos & Wildenbeest 2015), as smartphones, tablets, and other devices can open the files. Amazon E-books are well-formatted and contain the same information as physical versions would, delivering high value for the price. As such, they offer immediate access to information or entertainment without demanding that the customer pay a higher price or arrange transportation for the book.

Nevertheless, physical books have a considerable and dedicated audience of buyers. Gilbert (2015) notes that E-books are unlikely to affect sales of paperback equivalents. Physical books tend to be more expensive than digital ones due to the extra production costs, a disadvantage. However, according to Atasoy and Morewedge (2017), they fulfill a need for psychological ownership as opposed to the rental-like approach of online outlets. Physical books also have a decorative aspect that lends them additional quality in return for a higher price. As such, paperback consumers are willing to tolerate having to pay and wait for delivery or travel to a bookstore’s location to obtain their book since the benefits they get outweigh these costs.

E-books are cheaper than physical equivalents and contain the same information, making them the superior alternative in theory. They are also easy to acquire and highly portable, removing many of the complications of obtaining a paperback version and reading it. However, physical books remain popular regardless of the sales of E-books, as they offer a distinct set of benefits. The sense of ownership and the decorative value of physical books are among the most significant factors, as digital options are unable to fulfill either requirement. Many consumers are willing to tolerate the disadvantages associated with the purchase because they can afford them and believe that physical books are ultimately a higher-value product.

Reference List

Atasoy, O & Morewedge, CK 2017, ‘Digital goods are valued less than physical goods’, Journal of Consumer Research, vol. 44, no. 6, pp.1343-1357.

Baye, MR, Santos, BDL & Wildenbeest, MR 2015, ‘Searching for physical and digital media: The evolution of platforms for finding books’, in A Goldfarb, SM Greenstein & CE Tucker (eds), Economic Analysis of the Digital Economy, University of Chicago Press, Chicago, IL, pp. 137-165.

Gilbert, RJ 2015. ‘E-books: A tale of digital disruption’, Journal of Economic Perspectives, vol. 29, no. 3, pp.165-184.

Ike, L 2018, Marketing: Traditional, digital and integrated, Xlibris, Bloomington.

Reddy, SK & Reinartz, W 2017, ‘Digital transformation and value creation: Sea change ahead’, GfK Marketing Intelligence Review, vol. 9, no. 1, pp.10-17.

Background of the Company

It is hard to believe that the company, which is currently viewed as one of the titans of e-commerce, was born only twenty-five years ago and made its first steps in a small garage of its founder and CEO, Jeff Bezos. Amazon was founded in 1994, and its initial services were focused on online book sales (Schneider). Soon after that, Bezos diversified his organization’s options and added clothes, DVDs, video games, and music items to the list. The initial funding was provided by Bezos himself, who spent $10,000 to buy some furniture and arrange a small office in his garage (DePillis and Sherman).

After only five years of Amazon’s existence, Bezos was awarded the title “Person of the Year” by Time magazine. To a great extent, the award was given to Bezos for his achievements in promoting online shopping (Schneider). In 1997, Amazon went public by offering its shares for $18, which gave the company a valuation of $300 million. Amazon warned its prospective investors that it expected substantial operating losses in the nearest future because it needed to contribute to marketing and technology (DePillis and Sherman). Marketing expenses were necessary to beat the competition from Barns & Noble, a bookselling giant at the time. Also, in 1997, Bezos opened a second facility in New Castle that gave a start to the network, which would soon touch almost all states in the country.

Much attention in Amazon is paid to corporate culture, which is highly customer-centered. In fact, the organization believes that if it does not satisfy its clients’ needs, it will fail (Schneider). Along with viewing customers as its largest asset, Amazon believes in ownership from its team members since owners are more likely to think long-term and use opportunities to their advantage. With this in mind, it is logical that becoming a member of Bezos’s team is not an easy matter. Unlike Google, which offers a variety of perks to its workers, Amazon puts emphasis on frugality, considering it as a source of self-sufficiency and resourcefulness (Schneider).

Within years of operation, Amazon has offered its customers a variety of products and options. In November of 2007, Kindle, the electronic reading device, was unveiled (DePillis and Sherman). With its help, users became able to download books and other reading materials wirelessly. Soon after that, in December of 2007, the company announced new headquarters in Seattle. In the next few years, Amazon purchased a variety of important assets: the audiobook program, Audible in 2008, the shoe shopping site Zappos in 2009, the robotics company Kiva Systems in 2012, and others.

The development of new technologies and marketing options required new acquisitions and partnerships. Thus, in 2013, Bezos offered to pay $250 million to help The Washington Post that was struggling financially at the time (DePillis and Sherman). In 2014, Amazon unveiled its first smartphone, but the production stopped in a year. Also, in 2014, Amazon purchased Twitch Interactive, a video game streaming company. In 2015, the first physical shop was opened in Seattle (DePillis and Sherman). The company constantly evolves and seeks opportunities for productive partnerships. However, its success does not come without difficulties: recent scandals associated with the retreat of building headquarters in New York and suspicions of violating antitrust laws are the most widely known negative processes related to Amazon.

Amazon and Antitrust Laws

Despite Amazon’s success with millions of customers, there are growing concerns on the part of legislators as to the company’s treatment of antitrust policies. Amazon’s CEO is trying to convince the public that the organization’s first and foremost duty is to meet the needs of its clients. Meanwhile, critics remark that the low level of profit is a sign of Amazon’s politics aimed at underpricing its rivals and becoming a monopoly in the long run.

To its customers, Amazon looks like a highly beneficial company allowing people to buy products for low prices. However, such activity, which seems too good to be true, has raised concerns among policymakers. The company that started almost from nothing is repeatedly accused of abusing the competitive advantage and progressively establishing a dominant marketing position (Lewitt). A popular opinion on this issue is that Amazon is underpricing its competitors in the hope that when clients face the absence of alternatives, they will have no other choice but to use Amazon’s services (Dayen). The technical definition of such practice is predatory pricing, and it is deemed illegal by the country’s laws.

The reason for concerns among legislators is that Amazon’s profits are reported as extremely small while its sales increase impressively every year. The lack of a logical connection between “staggering growth” and “meager profits” raises questions and increases doubts about the organization’s true intentions (Khan 713). Rather than demonstrating its earnings, Amazon frequently puts emphasis on its cash flow, which allows potential investors to notice that it is profitable. For instance, in 2018, the reported cash flow was about $30 billion (Dayen). It is noted that the positive cash flow is the only thing holding back a legal basis for considering that Amazon’s activity is violating antitrust laws.

Predatory pricing, of which the company is accused, presupposes that one sets the price on one’s services or products too low so as to attract customers who otherwise might have considered using someone else’s services. As Khan mentions, Congress considers predatory pricing as “a tactic used by highly capitalized firms to bankrupt rivals and destroy competition” (722). In other words, such a strategy may be defined as the attempt to “concentrate control” (Khan 722). However, it is rather difficult to prove that Amazon is employing the tactic of predatory pricing (Dayen). To validate one’s accusations of such practice, a plaintiff would need to show that Amazon’s prices are lower than the production costs. However, it is not possible to prove this without having access to the company’s internal books (Dayen). Hence, despite many suspicions, no one has succeeded in confirming anything yet.

There is one more issue increasing concerns about Amazon’s violation of antitrust laws: vertical integration. Khan considers Amazon as the “titan” of the 21st century that incorporates such entities as a retailer, a delivery and logistics network, a credit lender, a marketing platform, and many others (710). Therefore, the concept of vertical integration suits Amazon perfectly since the company combines a variety of production and distribution processes under its sole control.

While suspicions concerning Amazon’s profitability are increasing, some time must pass before (if at all) anything can be proved. So far, the organization relishes success and loyalty among its customers and keeps one of the leading positions in the list of tech giants. However, the company needs to be cautious of its further activities since the paradoxical ratio between its profits and growth is raising more and more questions.

The Refusal to Build Headquarters in New York

The most recent scandal involving Amazon concerns the company’s decision to cease the attempts to erect a new headquarters building in New York. Under the pressure of local opposition, Amazon reconsidered its intention, which it had announced in November of 2018. The major driver of altering the decision was the unexpected disapproval of activists and lawmakers who found the conditions arranged for Amazon by the New York government unfair.

Amazon had been considering the place for their new headquarters building since the end of 2017. By the end of 2018, the company announced two prospective East Coast headquarters locations: Long Island in New York and Arlington in Virginia (Salinas). Each of the two headquarters was supposed to house 25,000 employees. However, almost immediately after the announcement, which took place at the beginning of February 2019, the organization was bombarded with protests from New York citizens and officials (Salinas). Concerns were largely focused on the idea that Amazon might take over the neighborhood of Queens and create difficulties for local people.

However, there was one more rather significant aspect of the problem. The State of New York made an agreement with Amazon, according to which the company guaranteed $27 billion in revenue for the city. Out of this sum, $3 billion were supposed to be returned to the company in tax credits (Salinas). The agreement exacerbated the dissatisfaction of some lawmakers, union leaders, and activists who considered that public services and subway repairs needed and deserved incentives more than Amazon did (Salinas). The growing dispute led to the company’s CEO’s decision to reconsider the initiation of the project.

The major negative outcome of Amazon’s change of plans was that the city lost an opportunity to diversify the economy of New York. Mayor Bill de Blasio and Governor Andrew M. Cuomo were the ones most severely impacted by Amazon’s decision to retreat, which was announced on February 14, 2019 (Goodman). Both the mayor and the governor put much effort into the project and worked hard to promote it. With Amazon’s decision not to proceed, politicians could no longer rely on the company’s help in making New York a favorable location for the development of the technology industry.

While Amazon announced its decision to retreat the construction works in Long Island, it did not give up the idea of developing its business in New York altogether. The company’s representatives noted that some local and state politicians opposed Amazon’s presence in Long Island and were not ready to build the relationships the organization conceived for productive cooperation (Barro). However, Amazon still has a goal to expand its possibilities in New York City.

Particularly, the company supposes to advance the workforce of its 5,000 Brooklyn, Staten Island, and Manhattan employees. Barro argues that the deal with the new headquarters in Long Island was not much prospective from the beginning since the city did not need as many as 25,000 new employees, and Amazon did not need to create an anchor in the city. So far, it is hard to predict the company’s next steps in this direction. What is clear is that New York lost some crucial opportunities for development, and Amazon’s reputation suffered due to the opposition of activists. Prior to engaging in similar projects in the future, the organization will need to evaluate all the aspects rather thoroughly.

Works Cited

Barro, Josh. “Why Amazon Bailed on Its New York Headquarters.”Intelligencer. 2019, Web.

Dayen, David. “Is Amazon Violating U.S. Antitrust Laws? This Law Student Has Evidence.”In These Times. 2019, Web.

DePillis, Lydia, and Ivory Sherman. “Amazon’s Extraordinary Evolution: A Timeline.” CNN Business. 2019, Web.

Goodman, David J. “Amazon Pulls Out of Planned New York City Headquarters.”The New York Times. 2019, Web.

Khan, Lina M. “Amazon’s Antitrust Paradox.” Yale Law Journal, vol. 126, no. 3, 2017, pp. 710-805.

Lewitt, Michael. “How Long Can Amazon’s Ingenious Antitrust Avoidance Last?”Forbes, 2018, Web.

Salinas, Sara. “Amazon Could Be Reconsidering Its NYC Headquarters Site Due to Local Opposition.”CNBC. 2018, Web.

Schneider, Laura. “Overview of Amazon.com’s History and Workplace Culture.” The Balance Careers. 2018, Web.

Employees’ Majority

Amazon is one of the largest employers in the USA. As of 2015, the company employs about 231,000 workers, both full-time and part-time (The Statistical Portal 2016). The company headquarters is located in Seattle, Washington. Considering the fact that Amazon is an international company, it has 50 fulfillment centers and warehouses in the USA only, employing more than full-time 90,000 employees and about 130,000 workers that perform their duties outside these facilities. It should be said that the majority of the employees (about 24,000) work in Washington State (Soper 2015). The peculiarity of the company’s labor policy is seasonality so based on that it can hire thousands of extra employees per high season.

Unions

The situation with unions in regards to Amazon can be characterized as strongly negative. The company is known for its anti-union policies, and it has a long history of fending off labor unions of the USA from the moment of its creation in 1994 (Kopytoff 2014). In 2014, the Amazon workers neglected the idea of representing their interests by the Union again. The company’s management has a very clear position regarding this matter: “With today’s vote against third-party representation, our employees have made it clear that they prefer a direct connection with Amazon…” (Kopytoff 2014). Amazon has made serious efforts to achieve such a result, inviting law firms that specialize in withstanding the organized labor.

Top Executives’ Salaries

Amazon is known today as a huge company with tremendous revenues. It has made about $60 billion in 2012 in sales only (Thomas 2012). However, the company pays its executives considerably low salaries. According to Thomas (2012), the senior vice president that manages the international retailing business, Diego Piacentini, has made only $175,000 in 2012. The salary of Jeff Wilke, the executive manager of the consumer business in North America, was $10,000 less than Piacentini’s in the same year (Thomas 2012). On the other hand, top executives have substantial stock grants, so they do not complain, considering the growth of Amazon.com shares’ prices.

Employees’ Salaries

The salary the rest of the employees has depends on the position and work they perform. A warehouse worker earns from $9 to $14 per hour or $23,000-$35,000 per year. Software engineers earn much more, making about $90,000-$160,000 per year (PayScale 2016). Despite the considerably significant salaries, the employees of Amazon are not happy with their work conditions because of the internal policies’ strictness and excessive demands from the employer. The time of the workers is strictly regulated and controlled, while the conditions to follow these regulations are not created (Young 2013). Despite the claims that Amazon treats its workers well and pays 30% more than the usual retail stores do, employment in Amazon is not a very attractive choice.

Gender Balance

Amazon has a similar gender balance to the other large companies on the market. The company states that gender split across all positions is from three to two men to one woman. According to Neal (2014), “The percentage is slightly lower than those of Apple, Microsoft, Google, and Twitter, which all show a 70/30 split in favor of men, Facebook with 71/29 and LinkedIn with 61/39.” Women are paid less than men are (Gibson 2016). Amazon is criticized for the insufficient efforts in this area despite the claims of the executive management about the work done to improve the ratio.

Managerial and Employee Diversity

The statements of Amazon regarding managerial and employee diversity have presented the following situation. Most of the employees are men (63%), and there are 60% of white workers (Mac 2014). Over 75% of managerial positions are occupied by men, and about 70% of them are white. Only 15% of employees are African Americans, and they occupy only 4% of managerial positions. Hispanics and Asians constitute 9% and 13% respectively, and only 4% and a significant 18% of them are managers (Mac 2014). Finally, women work at 40% of workplaces in the company and only each fourth manager in Amazon is a woman.

Campaigns

Considering the strictness of the Amazon policies regarding unionizing the workforce, employees of the company have no opportunities to withstand their rights using strikes or unite anyhow differently for this purpose. However, certain changes took place when one of the warehouse workers, Brian Weiss, voiced his worries about the security of the parking lot of the company (Soper 2014). Managers from the HR department called him and reprimanded him because of this. He filed a complaint with the National Labor Relations Board. Former works of other warehouses initiated lawsuits again the company due to similar reasons (Soper 2014). Amazon had to settle the issues, negotiating behind closed doors.

Response

Today, the company has managed to agree to implement several changes to the rules of communication of the workers through the official company’s channels. The employees obtain the opportunity to talk about the problems they experience at work without the pressure of the potential punishment (Soper 2014). Amazon was obliged to provide its employees with the right to organize unions.

Bibliography

Gibson, Kate. 2016. “Amazon Resists a Push for Gender Pay Equality.” CBS News. Web.

Kantor, Jodi. “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace.” The New York Times. Web.

Kopytoff, Verne. 2014. “How Amazon Crushed the Union Movement.” Time. Web.

Mac, Ryan. 2014. Amazon Releases Diversity Numbers for The First Time and Surprise, It’s Mostly Male and White.” Forbes. Web.

Neal, Dave. 2012. Amazon Diversity Report Draws Criticisms on Race and Gender Balance. Web.

PayScale. 2016. Average Salary for Amazon.com Inc Employees. Web.

Soper, Spencer. 2014. “Amazon Worker Forces Changes as Labor Board Settles Claim.” Bloomberg. Web.

Soper, Taylor. 2015. “Huge Growth: Amazon Reaches 222,400 Employees, Hires 39,000 in Last Quarter Alone.” GeekWire. Web.

The Statistical Portal. 2016. “Number of Amazon.com Employees from 2007 to 2015.” Statista. Web.

Thomas, Owen. 2012. “The Highest-Paid Executive at Amazon.com Only Makes $175,000 A Year.” Business Insider. Web.

Young, Angelo. 2013. “Amazon.com’s Workers Are Low-Paid, Overworked and Unhappy; Is This the New Employee Model for The Internet Age?” International Business Times. Web.

Introduction

Supply chain management is a crucial constituent of any retail business entity. The smooth flow of operations within warehousing, inventory, transportation, and delivery is key to successful performance and customer satisfaction. Amazon, as one of the leading online retail companies, demonstrates significant advancement in its supply chain management. In this paper, general information about the company, its supply chain strengths and weaknesses, innovations, and perspectives for future improvement will be provided. A broad discussion of the strategic decisions made by the authorities of Amazon will be presented to introduce Amazon’s transportation improvement plan.

Demographic Information About the Company

Amazon is an American online retail company that has become a leading entity in the worldwide market of online product selling. It was founded in 1994 as a retailer of books (Sharanya & Nair, 2018). The headquarters of the company are located in y based in Seattle, Washington. The current range of Amazon’s products varies from books, computers, and goods for gardening to media, such as e-books, films, music, and others (“Amazon.com Inc.,” 2019).

Also, the company offers services of personal shopping, direct delivery to the client, and an accessible system of online payments. The number of employees in the United States is estimated to be approximately 275,000 people; however, the investments made by the entity have led to the creation of 680,000 jobs in the country (“About Amazon,” 2019). Amazon’s strategy is to create a favorable economic environment for small businesses that would enable efficient and reliable service and product delivery for the customers.

The Relevance of the Supply Chain to the Company’s Strategic Goals

The supply chain utilized by the company enables creating transportation opportunities from the place of the product’s origin to the location of consumption in the shortest period. The entity initiates such programs as Amazon Flex and Delivery Service Partners to encourage small businesses participation in free and fast delivery of products (“About Amazon,” 2019). Overall, technology and artificial intelligence are identified as the essential components in the supply chain management utilized by Amazon (Fawcett, Jin, Fawcett, & Bernardes, 2018; Onyusheva & Seenalasataporn, 2018). The robotic technologies enable the immediate automatic transition of the information about order placement and its shipment to a customer.

Warehousing includes a wide system of places for product storage situated closely to large residential areas so that the products can be available at any time. Effective vendor management enables a continuous supply of goods to the company (“Planning the Amazon experience,” 2019). Such an approach to supply chain management is relevant to the company’s strategic goals which prioritize technological advancement and customer satisfaction. The effective utilization of such a strategy allows Amazon to grow as a retail company and provides promising perspectives for future development and competitiveness.

The Strengths of the Supply Chain

Evidently, the strength of this supply chain is its ability to satisfy both vendors and customers by ensuring successful performance and profit for Amazon. In more detail, firstly, the system of warehouses and distribution centers, which are located in different parts of the world close to large cities, contains all necessary products that might be ordered (Sharanya & Nair, 2018). Secondly, strong logistics enables fast and most efficient delivery options. Thirdly, the segmentation of customers and the price differentiation system provide an opportunity for faster shipment of the order (Onyusheva & Seenalasataporn, 2018).

Lastly, a range of partners which cooperate with Amazon allows for timely distribution of products and their availability on demand according to the pull strategy. All these advantages in the supply chain make Amazon the leader in the online retail market.

The Weaknesses of the Supply Chain

As for the weaknesses, it seems relevant to mention that Amazon uses other delivery companies (FedEx and others) services to transport its products to the customers. Such a strategy enables creating a wide partnership framework but also might impose reliability challenges. In addition, the automation of the warehousing and the attraction of robotic systems and technologies are expansive and impose significant expenditures for the company on a regular basis.

Metrics Utilized by the Company for Its Supply Chain

The utilization of specific metrics allows for a company’s successful assessment of its supply chain and change implementation if necessary (Christopher, 2016). The metrics which apply to Amazon’s supply chain management include inventory velocity, which contributes to the optimization of warehousing of the products with acute attention paid to those with the most and least demand. Perfect order to customer also shows its significance for the analyzed company, since Amazon prioritizes smooth delivery of products to its clients without any incidents. Also, due to the fact that Amazon has created a significant system of partners and small businesses which cooperate within one corporation, perfect order to vendor metrics helps to identify the efficacy and performance parameters of the cooperating entities.

Supply Chain Initiatives and Innovations Implemented by Amazon

Amazon has undertaken a series of initiatives and innovations in the sphere of supply chain management, which have contributed to its business success. One of the initiatives introduced by the company is same-day delivery, which was first implemented in 2005 and is still available for customers in the USA (Sharanya & Nair, 2018). Another Amazon initiative relates to the creation of the prime members’ free two-day delivery. This shipping strategy allows for increasing revenue and investing in the following adjustment of the delivery program to the demand of the clients. It is estimated that “over 100 million consumers pay $119 per year to participate in the Prime program” (Fawcett et al., 2018, p. 2).

Amazon has opened a number of Prime Now delivery hubs in big cities. Also, Amazon initiates outsourcing programs to enhance the efficacy of its operations. As for innovations, the application of new technologies is the key to the company’s success. One of the projects that the entity works on is the opportunity to “use drones for rapid delivery if regulatory approval is obtained” (Sharanya & Nair, 2018, p. 39). These initiatives and innovations set high benchmarks for the competitors and change the whole design of the online retail business.

Supply Chain Initiatives and Innovations that Amazon Should Consider

The extensive utilization of technology, logistics, and partnership programs leaves little space for recommendations. However, the advancements in the world of business set their requirements even for such successful companies as Amazon. Therefore, an initiative that the entity should consider is related to the transportation means that the company is utilizing for order delivery. As it has already been mentioned, Amazon partners with FedEx and other delivery service corporations to ensure its fast and comfortable shipping for the customer’s satisfaction. However, it is recommended for the company to engage in the development of its own means of delivery, which would minimize the inclusion of third parties and thus increase the reliability of the business, as well as its brand recognition.

The Next Step to Improvement of the Supply Chain

In order for Amazon to improve the supply chain and utilize the recommended initiative, it should invest in the development of its own end-delivery means which would be visible to the customers. It is anticipated that brand recognition will be greater if the customers perceive the company’s logo when connecting with the ultimate delivery point. Therefore, the company should start with the implementation of partial delivery by company-owned transportation means on its way to the broader implementation of the initiative. It is anticipated that the freight flow will not change under the influence of this recommended plan; however, the customers’ recognition of the company will contribute to the popularity of the brand.

Conclusion

To sum up, Amazon is a global online retailer that has originated in the USA and expanded throughout the world. Its supply chain embraces a wide range of warehousing that use the latest advancements in logistics and technologies to operate the order delivery in a fast and most effective manner. The developed system of partner cooperation and the inclusion of small businesses all over the world has allowed Amazon to reach any customer in a two-day time.

Therefore, the Prime delivery programs and delivery hubs are applied to supply products to the clients fast. The area for recommendations is related to brand recognition which might be limited due to the in-sourcing strategies of delivery services. It is anticipated that the development of Amazon’s own means of end-delivery will expand its influence on the market and benefit the corporation as a whole.

References

About Amazon. (2019). Web.

Amazon.com Inc. (2019). Web.

Christopher, M. (2016). Logistics and supply chain management. London, United Kingdom: Pearson.

Fawcett, S., Jin, Y. H., Fawcett, A., & Bernardes, E. (2018). Technological game changers: convergence, hype, and evolving supply chain design. Production, 28, e20180002. Web.

Onyusheva, I. V., & Seenalasataporn, T. (2018). Strategic analysis of global e-commerce and diversification technology: The case of Amazon.com Inc. The EUrASEANs: Journal on Global Socio-Economic Dynamics, 1(8), 48-63.

Planning the Amazon experience. (2019). Web.

Sharanya, & Nair, S. V. (2018). Supply chain management system of Amazon. International Journal of Latest Technology in Engineering, Management & Applied Science, 7(1), 37-40.

Return or exchange of a product

Amazon.com

In the Amazon online purchasing site, it is very easy to return or exchange a television set as long as the product is unopened and is less than a week old from the day of reception. In order to return or exchange the television set, the buyer must visit the online return centre. Once on this page, the customer will click the section marked as return items. The return item page will give the customer the order options for the item to be returned. After selecting the item to be returned, the customer should enter appropriate product description and the click the most appropriate return option. The procedure is completed by selecting the desired shipping method. It is important for the customer to print the product label which should be attached to the return package (Fagerstron & Ghinea 2011).

The return or exchange policy for the Amazon states that there should be a return authorization which authenticates the online return application for the television set. However, the television set should be its original condition, unopened, unworn, and still having the serial number intact. The time limit for a television set is 30 days upon reception as indicated in the delivery order. The only charges for a return or exchange of a television set are the shipping costs, which depend on the location of the customer (Fagerstron & Ghinea 2011).

eBay

In order to return a television set on eBay, the customer should start by locating the item from the dropdown menu called More Actions. The page will give the customer options and reasons for exchange or return. Upon selecting the reason for the return, the customer will get a postage label which is to be printed and parked with the television set in the packaging slip. The customer completes the steps by dropping the items at one of the local collection centres (Fagerstron & Ghinea 2011).

The eBay’s return policy indicated that the television set should be returned within 35 days upon reception. Same as the Amazon’s return policy, the television set should be its original condition, unopened, unworn, and still having the serial number intact. However, the charges are only applicable when shipping is involved.

Security

The Amazon and eBay online shopping sites have adopted several strategies to ensure that information of the customer is protected. These policies are influenced by the need to ensure that safety and security over the cyberspace is guaranteed. Thus, the introduction of a Secure Online Shopping System (SOSS) by these sites is vital towards protecting customer information. Secure online shopping system is a platform where consumers are able to make orders on particular product and make payments using their credit cards. The SOSS platform ensures the safety and security of those cards.

Besides, these sites offer password protection system in collaboration with the customer. As part of their security policy, every customer is required to choose a strong password which should be changed frequently. In addition, the sites use very secure trading platform that has a 24/7 system support centre (Fagerstron & Ghinea 2011).

Forms of Payment

Amazon accepts payment for its products through the Amazon.com cards. The cards are customized to meets the demands of each customer. Amazon has two types of cards which are the Amazon.com Store Card and Amazon.com Rewards Visa Card. For those within the US, the site also offers payment options such as the Credit Card Marketplace. On the other hand, the eBay site has more payment methods than the Amazon site. Among the payment methods include ProPay, PayPal, Bill Me Later, and Skrill. Besides, the site accepts international credit cards and the direct payment for customers who prefer picking their products at the collection centres (Fagerstron & Ghinea 2011).

Shipping costs

For the eBay site, shipping is always free. However, if the customer request for a faster delivery, there are expedited shipping charges. For the television set, which was a Samsung LN32D403 32” HDTV, I purchased it at $328.88 which is inclusive of the shipping charges of $10 within the US. On the other hand, the similar product was going for $317.90 with a free shipping charge within the US. However, there is a flat charge of about $100 for shipping outside the US.

Taxes

For both sites, taxes are pre-calculated at 5% of the product price. However, taxes tend to vary for different products, depending on the location of the customer and the category of such a product. For the television set, the tax charged was 5% of the product price (Fagerstron & Ghinea 2011).

Other fees

For international companies outside North America, the Amazon and eBay sites, there are custom charges in addition to taxes in the receiving countries. Depending on the taxation regimes in the receiving countries, the companies will have to pay more to cover for these additional charges (Fagerstron & Ghinea 2011).

References

Fagerstron, A., & Ghinea, N. (2011). On the motivating impact of price and online recommendations at the point of online purchase, International Journal of Information Management, 2(31), 103-110.

Amazon.com

Amazon.com is one of the most successful companies in the current online business market. The company attained its breakeven point with the development of a large number of internet users in the 1990s. The introduction of information technology as a viable avenue to harbor knowledge and entertainment products was the main idea used to develop Amazon.com into a globally recognized company.

In the initial period of the company’s operations in the online platform, it failed to develop a large market share. This failing trend ended when the company engaged in an IPO in 1997, which provided the company with enough capital to develop a superstore in the online market. The company’s marketing strategy succeeded through the tremendous growth in the number of internet users and readers across the world. The development of IT came as a business booster for the company, and by 1998, Amazon.com had begun forming partnerships with various companies offering online commodities. The development in IT influenced the company to assume diversification in its processes to harness a larger market share.

The development in IT lured Amazon.com to invest in qualified experts in handling their systems in the late 1990s. The experts included a professional executive from Microsoft. The company invested heavily in talent to attain fast growth in its business processes. There were numerous challenges facing online companies in the late 1990s, and Amazon.com was among the many companies that were still struggling to make profits.

The biggest threat to the online enterprise was the traditional retailers, and Amazon.com needed to develop strategic partnerships with companies like Toys “R” Us. The partnership influenced the development of higher returns for the company because more customers began frequenting its online infrastructure. Since attaining its breakeven point, Amazon.com has attained tremendous success through the development of strategic partnerships with various online companies to diversify its business. The lesson learned from Amazon.com is that strategic partnerships for online businesses may spell out success for struggling companies.

Boeing

Boeing entered into the commercial aircraft business in 1954. After acquiring newly focused leadership in 1996, Boeing embarked on a competitive spree embedded on price competition with other players in the market. In the early 2000s, Boeing and Airbus were involved in close competition for market share across the globe. While Boeing had previously dominated the global aerospace business for many years, Airbus was taking over with more deliveries and financial returns.

The global market during this period was spoilt for choice because there was minimal diversification of products between the two companies; hence, neither of the companies had an advantage over its counterpart. Boeing needed to differentiate its products from Airbus to generate new customers. “E-enabling” Boeing’s product was the only way to beat its competition in the business. Boeing had to turn to information technology to develop airplanes that could be easily integrated with airline’s information systems.

Through networking the airplanes would help airlines to develop new services and facilitate the development of the fastest ways of providing solutions to their clients. “e-enabled” airplanes would translate to efficiency in service delivery for customers; hence, airlines would prefer Boeing’s products to its closest competitors. The company assembled a team to work on the project in February 2004. Boeing formed strategic partnerships with international air traffic control organization to market its “e-enabled” aircrafts. By 2005, the company had launched a network to control air traffic, and this gave it an edge over its competitors.

The e-environment introduced to airlines by Boeing is still one of its greatest competitive advantages in the current market. The lesson learned from Boeing is that influencing innovation through IT is a viable competitive strategy for businesses.

Canyon Ranch

Canyon Ranch has developed diverse business processes over the years, with a goal to enhance the wellness of their clients, entertainment, and influencing high profitability. Canyon Ranch is a service business, and its nature has influenced the management to refrain from using technology to provide services. The spa business is one of the areas where the company has avoided the use of information technology because of the threat of dehumanizing the services.

The organization has traditionally used word-of –mouth as its main marketing strategy. The company maintained a static website until 2004 when the management identified the use of IT as a viable marketing strategy. While the company has had an IT department since the 1990s, the department’s core business was to maintain the systems used in the company to enable smooth delivery of services to clients. The different entities owned by the company traditionally preferred using a decentralized IT function. The diversification model was the most feasible for the company because it deals with different business processes in different departments.

In 1999, the company upgraded its information system to monitor the transactions in its various departments. The company has also developed a system that evaluates its customers’ preferences to offer better services and maintain its highly competitive position in the market. Over the years, the company has developed from using limited IT systems to the current state where all services are monitored through computerized systems, making it easier for clients to get their services with minimal usage of paperwork. The lesson learned from Canyon Ranch is that companies can use IT without dehumanizing their business processes.

Royal DSM N.V

When DSM N.V. Company developed its “vision 2005: Focus and Value” project in 2000, the biggest challenge was the development of an upgrade Information and communication technology system that would satisfy the requirements of the diverse entities. The company needed an upgraded system that would easily integrate the processes of newly acquired business entities for management efficiency purposes.

DSM identified the use of information and communication technology as a viable competitive strategy in the 1990s as it prepared to achieve higher returns in the 21^st century. Some of the IT related efforts that the company employed were the development of ICT, research on alternative sources of energy and biotechnology. The company has focused on unification as its core business model to standardize its products in the global market, and the use of technology is held paramount to achieving the same.

The actualization of “Vision 2005: Focus and Value” happened through a three-phase ICT upgrading project. The first phase included the standardization of ICT in the company through the installation of new technological devices and software in its entities. The second phase involved the development of a business-oriented company with a centralized ICT system. The last phase involved the development of ICT governance protocols that would influence service delivery while eliminating the company’s past focus on solving problems.

The new ICT system has promoted transparency in the company’s business processes, and it has also made it easier for the company to integrate its new acquisitions into the ICT system. The use of technology in business management at DSM has propelled the company into tremendous success in its international business activities. The lesson learned from DSM is that using centralized ICT systems in a model of unification is the most viable strategy for effective management of numerous business entities under one company.