Amazon Business Strategy and Competitive Advantage: cost leadership & customer centricity

Amazon Business StrategyAmazon business strategy can be described as cost leadership taken to the extreme. The global online retailer operates with a razor thin profit margin and succeeds due to a combination of economies of scale, innovation of various business processes and a constant business diversification.  Amazon business strategy is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.[1]

The following four points constitute the cornerstones of Amazon business strategy:

 

1. Regularly entering into new niches and segments. Started only as an online shop for selling physical books in 1997, today Amazon sells anything that can be sold online in the global scale. Sophisticated global logistics represents one of the solid bases of Amazon competitive advantage. The tech giant has used this advantage extensively to engage in successful business diversification. Recently, the company launched Amazon Home Services, a simple way to buy and schedule local professional services as a continuation of its diversification strategy.[2]

 

2. Strengthening Amazon ecosystem. Amazon ecosystem consists of merchants, writers, reviewers, publishers, apps developers, and the information market of commentators, analysts, journalists and feature writers who get the word out about opportunity on the Amazon platform.[3] Amazon senior leadership engages in deriving maximum benefit from each component of company ecosystem, as well as, strengthening relationship between the components.

Therefore, due to aggressive expansion of range of products and services within Amazon ecosystem, it would not be correct to classify its business operations within a single industry. As it has been noted by company’s vice president of user experience “Amazon is in the business of taking the right decisions for customers”.

 

3. Uncompromised focus towards customer service. Customer obsession is placed at the core of Amazon business strategy. The largest internet retailer in the world by revenue focuses on long-term growth rather than short-term profit. In its attempt to “seek to be Earth’s most customer-centric company”,[4] Amazon does not bother with the competition too much. Instead, it has been noted that “Amazon puts a chair in every boardroom to represent the customer — a physical reminder to innovate on their behalf.”[5]

 

4. Focusing on Amazon leadership values. Gaining maximum contribution from human resources is another source of Amazon competitive advantage. Working for Amazon is highly challenging experience and employees are expected to take on heavy workload, often sacrificing work-life balance. Amazon leadership values consisting of 14 principles, such as customer obsession, insisting on the highest standard and diving deep, play an instrumental role in terms of increasing the input from human resources.

Amazon Inc. Report 2018 contains a full analysis of Amazon business strategy. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Amazon. Moreover, the report contains analyses of Amazon leadership, organizational structure and organizational culture. The report also comprises discussions of Amazon marketing strategy, ecosystem and addresses issues of corporate social responsibility.

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

[2] Hallam, S. (2017) “Amazon’s Business Strategy: 6 examples of latest trends in ecommerce” Hallam, Available at: https://www.hallaminternet.com/amazons-business-strategy-new-developments/

[3] Shaughnessy, H. (2012) “Why Amazon Succeeds” Forbes, Available at: https://www.forbes.com/sites/haydnshaughnessy/2012/04/29/why-amazon-succeeds/#79a89a00385a

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

[5] Marder, L. (2018) “Amazon Growth Strategy: How to Run a Multi-Billion Dollar Business Like Jeff Bezos” BIG COMMERCE, Available at: https://www.bigcommerce.com/blog/amazon-growth-strategy/

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