Amazon’s Generic and Intensive Growth Strategies
The business environment of the twenty first century is highly complicated. It is not easy to survive the intense competition and to survive it any company must have a source of sustainable competitive advantage. Now, competitive advantage can arise from multiple sources. It is not just technology or an excellent product or service that can be a source of competitive advantage. Excellent supply chain or human resources too can become a source of competitive advantage too. Michael E porter has outlined three generic strategies that can help a firm create a source of competitive advantage. They are cost leadership, differentiation and focus. The third one has been sub divided into two more categories – cost focus and differentiation focus. The industry is replete with such examples where firms have used one or more of these strategies for competitive advantage. Amazon is the largest online retailer and has found very sharp growth in the recent years. This article analyzes the generic strategy used by Amazon and the intensive strategies it has used to find growth in the market.
Amazon’s main generic strategy is that of differentiation. It has differentiated its business model with the use of technology and skilled human resources. It serves its customers through its website and apps. Amazon has developed a lot from being a book seller to being the largest retailer online. Not just this, Amazon used best in class technology to serve its customers and enable its employees to perform. It has software and algorithms for various things including box sizing to delivery. It also has a rich history of developing and introducing cutting edge technology at its fulfillment centers that help its employees deliver efficiently.
Apart from these things, another special feature about Amazon’s business model is its focus on customer service. This is not just a point of differentiation but one of the key competitive strengths of Amazon. It is known for its great quality of service. Its quality of customer service has turned it into the favorite of online shoppers. However, the large range of products that it sells also comprises a key competitive strength. In this way, Amazon has achieved a sustainable competitive advantage. While several competitors have entered the market place and tried to challenge its position using strategies like lower prices, Amazon has continued to rule. It introduced Amazon Prime to help its customers get their products delivered faster. It continues to improve its level of customer service and that’s how it has retained its number one position in the online market place. Both excellent technology and customer service have helped it achieve faster growth. Overall, it has managed a seamless user experience for its online customers.
The Ansoff matrix provides fourth growth strategies – market penetration, market development, product development and diversification. These strategies can be used by brands to grow their market share and find faster growth.
This is the strategy of selling more to a brand’s existing customer base. Amazon entered the market as a book seller and grew to become the largest retailer. As it set its foothold in the market as a known bookseller it introduced other products too which could be bought online. This is how Amazon has grow its market presence. Today, it sells millions of products and this product line continues to grow with more suppliers entering its system. It has also proved itself highly effective in terms of gaining consumer loyalty. So, its loyal consumers prefer the online platform for shopping a diverse range of products from electronics to fashion and groceries. Now, it successfully sells more products to its customer base.
Market development means selling the same products or services to new customers or in new markets. Jeff Bezos had launched Amazon out of his garage. Today, Amazon has grown into a global company. While the North America and some European nations including Germany and UK are the main strongholds of Amazon, it has continued to grow its presence globally. In the recent years it has sharply increased its presence in the Asian countries by spending more on marketing and advertising. It continues to grow its presence in the other parts of the world as well. As the internet activity has continued to grow globally, so has done its market presence.
Amazon has also focused on product development to grow its market presence. Apart from Kindle, it also introduced the fire phone. However, while Kindle was a major hit, Fire could not be very successful. Now, its Alexa enabled products form a significant share of products sold by Amazon. It has also introduced a wide range of products in several more categories that are produced by inhouse brands owned by Amazon. AWS, which is Amazon’s cloud platform has also helped the company grow its revenues and profits. AWS has brought a nice range of cloud based technological resources for developers and enterprises and their range continues to grow with time. In this way, Amazon has used product development to grow its market share faster.
From being a book seller, Amazon has grown into a brand that offers a diverse array of products and services. Today, it competes with companies like Apple, Google, Microsoft, and Netflix. It is not just an online retailer but also a provider of web services and streaming videos. Amazon web services or AWS is an on demand cloud platform that provides a wide range of cloud based services and is continually launching new features and functionality. Amazon prime provides streaming videos while Amazon music serves music lovers across the world with its enormous collection of songs. In this way, Amazon has continued to diversify into new fields of business to grow its brand and market share. Amazon also acquired Twitch to expand into the gaming market.