Chapter 11 blog post-Amazon's diversification strategies

This week in Chapter 11 we will discuss Amazon and diversification strategies.

Today’s global economy firms must use corporate diversification

strategies just to stay profitable to hold on to their competitive advantage.

There are numerous types of corporate diversification, such as

limited corporate diversification which means “when all or most of its

business activities fall within a single industry.” (1)

A single-business firm consists of “firms with more than 95 percent of their total sales in a 

single industry”. (1) A dominant-business is described as “firms with between

70 percent and 95 percent of their total sales in a single industry”. (1)

Related corporate diversification is about entering a new market with a

new product that is somewhat related to a company’s existing product offering. Unrelated corporate diversification deal’s with firms entering a new market with a new product that is entirely unrelated to a company’s existing offering.

Amazon’s motto was “get big fast” (2). Within the last decade or so Amazon has evolved

into an e-commerce giant party through implementing corporate diversification strategy.

Amazon started from humble beginnings in 1994 as a single-business firm

selling books online and went to using a related and unrelated diversification

strategy by selling anything you can think of from food product to electronics to become

the largest e-Commerce Company in the world. Amazon is still

using a related diversification strategy by purchasing Whole Foods, offering a

prime subscription to members and offering cloud service

through AWS Amazon to companies like Netflix. Amazon must

continue to implement diversification strategies to sustain

competitive advantage in their market place.

1.Barney, J (2011). Gaining and Sustaining Competitive Advantage (4th ed). Upper Saddle River,    

   NJ: Pearson.

2."Bloomberg Game Changers"    https://www.youtube.com/watch?v=tfAhTtBlb2Q

In Charter 10 will discuss vertical integration.
Amazon’s vertical integration

Amazon will rule the world if the Department of Justice does not knock on their door first. Vertical integration is the wave of the future in the e-commerce space. From my research, nothing is off limits to Amazon now. You might see an Amazon container ship or two from China in the future.

“Vertical integration is a strategy where a firm acquires business operations within the same production vertical. It can be forward or backward in nature. Vertical integration can help companies reduce costs and improve efficiencies by decreasing transportation expenses and reducing turnaround time, among other advantages. However, sometimes it is more effective for a company to rely on the established expertise and economies of scale of other vendors rather than trying to become vertically integrated.”

When Amazon announced its intention to launch its shipping and delivery business, this sent the shares of stock for companies like UPS and FedEx into a  tailspin. After all, Amazon is a master of innovation. Amazon is focusing on multiple segments of the supply chain. From the individual organizations, resources, activities, and technologies from the supplier to the end / last mile with the purchase of a final product to the end-consumer. It has been working on technologies like drone deliveries to reduce the cost of its operations. Amazon is currently experimenting with other technologies such as in-house deliveries and local fulfillment centers across the nation to cut the delivery time down.

One of the highest-profile examples of forwarding integration is when Amazon purchased Whole Foods. Forwarding integration is a  type of vertical integration that involves the purchase or control of its suppliers. They want to be a vertically integrated, technology-enabled grocery shopping experience, which nobody else currently offers. The Whole Foods acquisition counts as forwarding integration because it gives Amazon  460 brick-and-mortar Whole Foods stores as a place to sell its products and customers pick them up.

To sum it up, Amazon has become the master of vertical integration for the e-commerce sector. When internet businesses started thriving, there was considerable ambiguity as to whether they will be able to achieve vertical integration. Amazon has indeed shown other retailers the way. It is on the way to becoming one of the most vertically integrated organizations in the world. In the end, Amazon wants to reduce costs by improving its efficiency by decrease transportation expenses to sustain a competitive advantage.

References

Vertical Integration - Investopedia. (n.d.). Retrieved from

https://www.investopedia.com/terms/v/verticalintegration.asp

https://m.youtube.com/watch?v=Efs3PyR8iBw

Chapter 9 TACIT COLLUSION: COOPERATION TO REDUCE COMPETITION

Amazon is dealing with the tactics of collusion and cooperation to reduce competition.

    When Amazon entered the e-book market in the late 21st century,

Bezos priced the best seller for $ 9.99. This was a significant discount

on new hardcover books that are usually sold. This strategy drives

customers from traditional publishers and helps Amazon gain a

share of online book sales. After fighting the plan, Amazon caved.

But the Department of Justice sued five publishers and Apple for collusion,

and Amazon described one of the resulting settlements as

"a big win for Kindle owners." The two largest traditional publishers have since merged.  

Random House and Penguin, which are seen as a chance to

build an entity that can stand up to Amazon's market power.”

In the long run, what publishers have to fear the most is not Amazon, but an idea it has helped engender the only players in the game which are the authors and the readers.

    Amazon has had to deal with collusion which exists when firms

in an industry agree to coordinate their strategic choices to reduce

competition in an industry. In the extreme, collusion occurs when

firms coordinate their output and pricing decisions. In some circumstances,

such collusion can lead to economic profits.

   On the other hand, Amazon is currently involved in

cooperative strategies that exist when firms work together to reach a

common goal of obtaining superior economic performance.

Through this partnership with other major brands and suppliers

Amazon has allows companies to use their e-commerce platform

to sell its products; which in return, Amazon receives a portion of the profits.

    At this point, we don’t know what the future will hold

for the e-commerce giant. In recent years President Trump

has been an immense critic of Amazon, and Jeff Bezos, which lead to

Trump saying Amazon had a "huge antitrust problem."

By the United States Department of Justice, standards a company with

a market share of greater than 50% has been necessary for courts to

find the existence of monopoly power." Amazon is not a monopoly

because it is only controlling 10% of retail sales in the U.S.

Amazon has been expanding and business such as

AWS Amazon’s cloud base services and transportation with

Prime air and home delivery services. The best is yet to come for Amazon.

References

Barney, J (2011). Gaining and Sustaining Competitive Advantage (4th ed). Upper Saddle River, NJ: Pearson.

https://www.justice.gov/opa/pr/justice-department-reaches-settlement-three-largest-book-publishers-and-continues-litigate

Book Publishers Scramble to Rewrite Their Future | WIRED

https://www.forbes.com/sites/brittainladd/2018/07/29/amazon-is-not-a-monopoly-president-trump-yet/#163c80694735

Week 8 Blog Post Chapter 8

Flexibility: Real Options Analysis under Risk

In this week’s blog post we will discuss Amazon’s Flexibility and Real Options Analysis under Risk. Flexibility allows Amazon’s business model is to be disruptive and innovative to keep and sustain a competitive advantage. There are six types of flexibility in options.

Table 8.2 from Barney’s, Gaining and Sustaining a Competitive Advantage 4th edition.

Currently, Amazon has built a portfolio of options that include the options to defer, grow, contract and to expand.

The option to defer- Amazon leases planes for potential exploration for Prime Air instead of buying them.

The option to grow- Amazon is currently building fulfillment centers across the nation with the ability to add capacity at low cost.

The option to contract - Amazon contracts temporary employees for the holiday season instead of full- time employees. Amazon is currently hiring 3,000 remote workers right now for customer service associates positions in Alabama, Arizona, Arkansas, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Washington, Wisconsin, and Wyoming.

https://www.cnbc.com/2019/03/11/amazon-is-hiring-3000-remote-workers-in-18-states.html

https://www.foxbusiness.com/personal-finance/amazon-is-hiring-3000-remote-workers-right-now-heres-some-tips-on-snagging-one

https://www.ecommercebytes.com/2018/10/18/amazon-plans-to-hire-100000-workers-for-holiday-season-2018/

The option to expand - Amazon investing in a new segment of business such as cloud base services and transportation could lead to the development of other products and services in the near future.

Lastly, in today competitive market Amazon has the ability to change direction quickly and at low cost, given unanticipated changes in the competitive situation. There are some trade-offs and uncertainty in being flexible. But, in Amazon case flexibility and options has served them well.

Resources:

Barney, Jay (2004). Gaining and Sustaining Competitive Advantage. Pearson Education Inc.

Week 6 Blog Post Chapter 7

PRODUCT DIFFERENTIATION  VS COST LEADERSHIP STRATEGIES

Amazon seems to be stuck in the middle. Sometimes it is best to
be “stuck in the middle” That is the name that Porter uses when
a firm attempts to implement both strategies.

Product differentiation is a strategy

that showcases the differences between products. Differentiation makes a

product more attractive by contrasting its unique features from other its

competitor's products. Product differentiation increases competitive advantage

for the seller because the customers view the product as superior or unique.

Were as cost leadership can establish a competitive advantage by having the

lowest cost of operation in the industry. Cost leadership is often driven by company efficiency, size, scale, scope and learning curve. A cost leadership strategy aims to exploit the

scale of production, well-defined scope, and other economies and, to produce

highly standardized products, using

advanced technology.

Having an Amazon prime membership account has its perks. Customers have a unique
opportunity to have access to the latest movie and music plus 2-day shipping
which keeps customers paying the yearly subscription fee. Amazon also uses a
cost leadership strategy too because they have the lowest prices for most of
their product that they sell, which give them a competitive advantage in the e-commerce market.