Amazon Value Chain Analysis

Value chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the business. Figure below illustrates the essence of Amazon value chain analysis.

Amazon value chain analysis

Amazon value chain analysis

 

Amazon Primary Activities

 Amazon Inbound logistics

Generally, Amazon does not have long-term contracts or arrangements with its vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits. Fulfilment by Amazon (FBA) is the cornerstone of Amazon’s inbound logistics for company-owned retail business. Sellers can also use FBA by stowing their inventory in Amazon fulfilment centres. In this case, Amazon assumes full responsibility for logistics, customer service, and product returns. If a customer orders an FBA item and an Amazon owned-inventory item, the company ships both items to the customer in one box, as a significant gain of efficiency. The use of FBA is an optional choice for sellers and this choice makes the products of third-party sellers eligible for Amazon Prime free two-day shipping, free shipping and other benefits.

Amazon uses logistics beyond the point to serve Amazon Marketplace and starting from recently, the company has been offering logistics services to others. Beijing Century Joyo Courier Services, an Amazon subsidiary registered with the U.S. government as an ocean shipping provider in November 2015.[1] From this point of view, efficient logistics infrastructure also belongs to the list of Amazon competitive advantages.

 

Amazon Operations

Amazon operations are organized into three segments:

  1. North America. This segment operates North America-focused websites such as www.amazon.com, www.amazon.ca, and www.amazon.com.mx. Sales in this segment increased 23%, 25%, and 25% in 2014, 2015, and 2016, compared to the comparable prior year periods.[2]

  1. International. This segment operates internationally-focused websites such as www.amazon.com.au, www.amazon.com.br, www.amazon.cn and others. International sales increased 12%, 6%, and 24% in 2014, 2015, and 2016, compared to the comparable prior year periods.[3]

  1. Amazon Web Services. This segment deals with global sales of computing, storage, database, and other service offerings for start-ups, enterprises, government agencies, and academic institutions. AWS sales increased 49%, 70%, and 55% in 2014, 2015, and 2016, compared to the comparable prior year periods.[4]

Amazon Web Services (AWS) offers pay-as-you-go cloud storage, compute resources, networking and computing services and its major customers include Pinterest, Dropbox, and Airbnb. Moreover, AWS is positioned as a platform for building applications and businesses like GE, Major League Baseball, Tata Motors, and Qantas have built applications ranging from apps for crowdsourcing and personalized healthcare to mobile apps for managing fleets of trucks on the basis of AWS. Generally, AWS offers more than 516 features and services and it has more than one million customers representing businesses and organizations of various sizes.[5]

 

Amazon Outbound logistics

Amazon operates 109 fulfilment centres around the globe and the company uses robotic technology in an extensive manner to manage receipt, stowing, picking, and shipment of products. Specifically, Amazon Robotics, which started with the acquisition of Kiva in 2012, now uses more than 15,000 robots to support the stowing and retrieval of products at a higher density and low costs.[6]

Traditionally, Amazon has relied upon the services of overnight delivery businesses such as UPS, FedEx and TNT. However, the company “recently revealed plans to lease about 20 Boeing 767 Freighters in an attempt to start its own air delivery business”[7]. It has been estimated that the lease of one Boeing 767 aircraft costs approximately 600,000 to 650,000 a month and the cost for leasing 20 such jets amounts to USD 156 million a year.[8] This is in addition to Amazon’s an air cargo network and thousands of 53 foot trailers[9]

The willingness of the company to commit to such massive financial investments can be interpreted as an evident move of the company towards gaining independency from the third parties in facilitating its logistics. The online retail giant has also announced Amazon Prime Air (a drone delivery system) and Amazon Flex (gig-economy based intra metro delivery service).

 

Amazon Marketing and Sales

Amazon’s annual global marketing expenses have been consistently increasing during the past six years to exceed USD 7.2 billion in 2016.[10] Amazon marketing message conveys the promises of the largest selection of products and services, attractive prices, fast delivery of products and overall superior customer services. Several components of the marketing communication mix such as print and media advertising, sales promotion, events and experiences, public relations and direct marketing are used in an integrated way in order to communicate the marketing message to the target customer segment.

 

Amazon Service

Amazon annual report says “we seek to be Earth’s most customer-centric company”[11] and accordingly, the company offers exceptional customer services. Amazon Marketplace and Prime has two types of customers – sellers on and buyers from Amazon platform. For sellers in particular, Amazon offers Selling Coach program “alerting sellers about opportunities to avoid going out-of-stock, add selection that’s selling, and sharpen their prices to be more competitive”[12].

Moreover, “Amazon’s returns process is dealt with entirely online through a customer’s account. If there is an issue that does require a customer to speak with a customer service assistant over the phone, they will have access to the customer’s account and order details, meaning that any issues can be dealt with quickly and efficiently.”[13]

Amazon topped the list of 100 globally-known brands across seven major industries for best customer experience in 2013. The Foresee Experience Index report is the result of analysis of 75,000 satisfaction surveys and the report quantifies customer experience by calculating customer satisfaction scores on a 100-point scale, with Amazon receiving an 87 in satisfaction.[14]

Amazon.com Inc. Report contains a full version of Amazon value chain analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces and McKinsey 7S Model on Amazon. Moreover, the report contains analyses of Amazon leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Amazon marketing strategy and addresses issues of corporate social responsibility.

Amazon.com Inc. Report

[1] Schreiber, Z. (2016) “Is Logistics About To Get Amazon’ed?” Tech Crunch, Available at: https://techcrunch.com/2016/01/29/is-logistics-about-to-get-amazoned/

[2] Annual Report (2016) Amazon.com Inc.

[3] Annual Report (2016) Amazon.com Inc.

[4] Annual Report (2016) Amazon.com Inc.

[5] Annual Report (2014) Amazon

[6] Annual Report (2014) Amazon

[7]Forbes (2015) Available at: http://www.forbes.com/sites/greatspeculations/2015/12/29/will-ups-fedex-lose-out-to-amazon/#6480830c2fbc

[8]Forbes (2015) Available at: http://www.forbes.com/sites/greatspeculations/2015/12/29/will-ups-fedex-lose-out-to-amazon/#6480830c2fbc

[9] Banker, S. (2016) “Is Amazon Building a First Mover Advantage in Logistics?” Logistics Viewpoints, Available at: https://logisticsviewpoints.com/2016/06/06/does-amazon-have-a-first-mover-advantage-in-logistics/

[10] Source Statista (2017)

[11] Annual Report (2016) Amazon.com Inc.

[12] Annual Report (2014) Amazon

[13] Amazon CRM Case Study (2017) Expert CRM Software, Available at: http://crmsystems.expertmarket.co.uk/Amazon-CRM-Case-Study

[14]Morris, T. (2013). Parachute, Available at: http://www.parature.com/amazon-customer-experience/