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OL 421 Amazon.

com
ADP Jan 2008

Introduction

Amazon.com, founded by Jeff Bezos in 1994, and in launched in July 1995, is one of the most

iconic and successful dot-com businesses. In less than 7 years, Amazon grew from a 4-man show

with their business running in a garage, to a company with a 160,000 square-foot office and

which employs 7500 employee. Amazon’s global headquarter in currently located in Seattle.

Business

Amazon first started its business on retailing books, but soon diversified into selling a variety of

products ranging from videos, computer equipments, household goods to clothing and jewelry.

Amazon’s business structure consists of four principle segments:

• Books, Music, Video/DVD (BMVD)

• Electronics, Tools and Kitchen (ETK)

• International Segment

• Services Segment

The BMVD segment and ETK division include retails sales from the North American division,

while the International segment include retails sales from Amazon’s international sites,

www.amazon.de, www.amazon.fr, www.amazon.jp. The Services segment includes the

revenues from commissions, fees and other amount earned in the services business, Auction,

Amazon Payments and zShops.

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Mission and Vision

Vision:

Our vision is the world’s most customer-centric company. The place where people come to find

and discover anything they might want to buy online.

Mission:

The Company’s six core values: customer obsession, ownership, bias for action, frugality, high

hiring bar, and innovation.

Motto: Work Hard, Have Fun, and Make History

Objectives

Amazon’s objective is to:

• Building a strong brand name

• Have a large product selection complimented by additional information for many of its’

products

• Pricing policy that offers considerable discounts for many of its products

Competitors

With online retail sales growing rapidly every year, and the fact that the low barriers of entry into

the industry, Amazon will always face steady competition.

The appeal and the potential that this industry possesses attract even traditional brick-and-mortar

companies to set up their businesses in the virtual portal. Notable companies like Wal-Mart and

Barnes and Nobles have grown to be Amazon’s main competitors, not only online, but offline as

well. Another main competitor is eBay, which has 17 operating international sites in countries

like Australia, U.K, Canada, Korea, Taiwan and Singapore.

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With 886 bookstores in September 15, 2003, Barnes and Nobles are Amazon’s biggest

competitors in the BMVD segment, and consequently are also the largest booksellers in

America. In 2003, Barnes and Nobles’ net sales are expected to range between $430 billion to

$470 billion. Wal-Mart, their other strong competitor also sells similar items such as music,

books, movies, jewelry and toys, but differ only in the prices and services they offer.

E-Bay, on the other hand, are Amazon’s main competitors in the International division. More

inclined towards the C2C businesses, eBay is the most popular shopping destination on the

internet, as people spent more time on eBay then on any other websites. In 2002, eBay projected

a total revenue of $1.21 billion, and a gross profit of $1billion.

Proposed Mission and Vision

Vision:

Expand to all countries with developing infrastructure, internet access and with increasing

demand for e-commerce activities while continuing to provide great customer services we have

been rendering.

Mission:

To continue offering quality products and services using the best technology available and at a

reasonable price to retain high loyal customers and improve company’s financial standings.

Using our competitive edge, we would like to venture into new markets that have a great growth

potential. Continue to have fun, be innovative and be socially responsible.

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INTERNAL AND EXTERNAL FACTOR EVALUATION

IFE Matrix for Amazon.com

KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED


SCORE
Strengths
1. Amazon has strong brand identity as the online 0.12 4 0.48
book retailing company through large selection of
products and their attractive pricing strategy.
2. Amazon owns an automated distribution center 0.11 3 0.33
that is cost efficient.
3. Amazon provides strong 24/7 customer service. 0.08 4 0.32
4. I-Click technology which enhances customer 0.05 3 0.15
service and convenience while browsing on the
internet.
5. Amazon’s active associate program which 0.07 3 0.21
diversifies product category and merchandise line.
6. Amazon constantly updates it software and 0.08 4 0.32
technology to increase efficiency and effectiveness.
7. Improving earnings per share 0.08 3 0.24
8. Improving current ratio 0.07 3 0.21
9. Improving debt to asset ratio. 0.04 3 0.12

Weaknesses
1. High shipping costs (due to attractive pricing) which 0.10 1 0.10
negatively affects advertising activities.
2. Amazon has extremely high debts levels. 0.05 2 0.10
3. Amazon’s global operation is very low. 0.09 1 0.09
4. Amazon has poor foreign currency management for 0.06 1 0.06
international transactions.
1.00 2.73

Analysis of Strengths

Amazon has a strong brand identity which gives it a strong competitive edge over its

competitors. To compete in the virtual market where there are no tangible products or services,

an online business must depend solely on its strong brand identity to attract customers. To further

strengthen Amazon’s position in the online retailing market, Amazon must be able to deliver its

goods to the customers in and effective and efficient manner. By setting up automated

distribution centers in strategic locations around the world, Amazon could reduce the time of the

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goods delivered to customers and at the same time reduce the freight charges because their

inventories are now located closer to the ordering customers.

Amazon who scored the highest in terms of customer satisfaction can owe it all to the fact that

they provide excellent customer service to their clients. Amazon has a 24/7 ready customer

service helpline which allows customer to call in any time of the day for enquiries and help. On

top of that, Amazon also adopted the I-Click technology which makes web surfing on its website

friendlier by storing information on customers and using them to project the type of products

which customers are interested based on their previous surfing and purchasing behavior. To

further enhance customer’s surfing experience, Amazon also updates its software and technology

frequently to increase their network system efficiency. This helps to prevent and guard against

system crashes and increase its network security against computer hackers.

Amazon also has a network of business associates whom are allowed to sell their products on

Amazon’s website. This associate program has been set up to widen the range of products and

merchandise offered on Amazon.com. Amazon’s growing earnings-per-share ratio has a positive

impact on Amazon because investors are valuating Amazon above its par value. This would not

only bolster Amazon’s reputation as a profitable company, but more importantly provide

Amazon with more funds for advertising and expansion purposes. Despite the fact that Amazon’s

current ratio is still low, it has been steadily improving, giving investors and customers a more

positive sentiment towards the company. This helps to build supplier’s trust towards Amazon

because of Amazon’s ability to pay off their short term debts to creditors without any difficulties.

Current Ratio 2003 2002 2001

1.45 1.515 1.31

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Earnings per Share 2003 2002 2001

0.089 0.396 1.529

Analysis of Weaknesses
One of Amazon’s critical strength is their strong and successful brand recognition, which was

achieved mainly through aggressive advertising. Advertising has led Amazon’s product demand

to increase and subsequently raising Amazon’s shipping costs as demands poured in. Substantial

increment in shipping cost has prompt Amazon to reduce on advertising expenditure to

compensate for a more attractive pricing strategy that will cover part of the distribution expenses.

Reduction in advertising will hurt Amazon’s brand presence.

Leverage Ratio 2003 2002 2001

Total Debt 1,949.7 2,290.6 2,172.1


Total Asset 2,162.0 1,990.4 1,637.5

Debt to Total Asset Ratio 90.2% 115.1% 132.6%

Although Amazon has been reducing their debt margin through the years, they still have

relatively very high debt. This could be due to poor money and asset management. The high

sales revenue that Amazon earns is useless to the company if a big portion of it must be used to

repay debts and interest! Such valuable resources could have been used to aid in other productive

purposes like global expansion or to make their pricing strategy more feasible without having to

reduce advertising expenses.

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Although Amazon is a very established online retailer in the US, they don’t appear to have much

brand presence and recognition globally. Although Amazon’s international sales grew from 21%

to 30% in 2001 to 2002, the growth is not proportionate to the growth of internet users,

especially outside the US. Amazon appears to have some trip up with managing their

international operation as they are not only not trying to fully realize the potential of online

international sales, but they are not managing foreign currency to their advantage as they

continue to get caught in the currency crisis of the dollar.

EFE Matrix for Amazon.com

KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED


SCORE
Opportunities
10. Online Retail Sales increased 48% - $76 Billion 0.10 4 0.40
in 2002.
11. World-wide Internet users are increasing, 0.11 3 0.33
especially in Asia.
12. Number of Latino and Hispanic Americans 0.05 2 0.10
online grew 13% to 7.6 million.
13. Constant upgrading of internet technology and 0.07 2 0.14
increased Broadband usage makes it easier for
customers to purchase online.
14. Weaker dollar against other currency boosts 0.06 1 0.06
exports and domestic sales.
15. E-commerce would represent 18% of worldwide 0.11 4 0.44
B2B and retail transactions by 2006.
Threats
5. Major competitive competitors like eBay, Wal-Mart 0.11 4 0.44
and Barnes and Nobles.
6. A low barrier entry to the virtual portal generates 0.08 2 0.16
many new competitors.
7. E-bay has already ventured into China's market. 0.10 1 0.10
8. Dollar weakening against other currencies. 0.07 2 0.14
9. VAT tax is imposed in EU since July 2003. 0.07 3 0.21
10. Internet purchasing is easily exposed to hacking 0.07 3 0.21
and identity thefts.
1.00 2.73

Analysis of Opportunities

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The table above shows the opportunities and threats of Amazon, Inc of year 2003. As seen,

Amazon Inc has as much opportunities as it has threats. One of the opportunities is the increasing

online retail sales, up to $76 billion in 2002, a 48% increase. This high number of sales may be

due to more and more people being exposed to the internet, and also the attractiveness of

purchasing things at the convenience and comfort from their homes.

Global Internet users are increasing; in Asia alone, there are 50 million new users per year. It is

an opportunity for Amazon to tap into the online Asian market while there are still little players

on the field. Amazon needs to quickly establish itself in the Asian market before competitors

monopolize this attractive market.

In addition, there are more and more Hispanic and Latin American users online, and given the

fact that minorities often respond well to advertisement targeted at them, Amazon can try to

serve this group of people and cater to their needs to gain brand loyalty from them. This group of

people are new to the web, thus they are not aware or attracted with other companies yet. By

reaching out to them first, Amazon can establish itself as a household name and the number one

online retailer among the Hispanics and Latino Americans.

Moreover, broadband usage has increased in the United States. With a smoother and faster

connection, it makes shopping online easy and more secured. This will improve security and

transaction flow as opposed to using dial-up which is slow, and sometimes the line disconnects

and interrupts your purchasing sessions.

Upgrading Internet technologies has also enhanced customer experiences in purchasing goods,

now, they no longer only see the item from the pictures in the catalogs, they can also use 3D

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virtual models, 360-degree-virtual-reality tours, and other videos and audio tools that can help

them evaluate the items that they want to buy.

Analysis of Threats

The biggest threat to Amazon is its main competitors, the three giants of online retailing, Wal-

Mart, Barnes and Nobles and eBay. Every competitor has its own strengths and weakness, and

uniqueness. Wal-Mart has an impressive warehousing and storage system that makes it very

efficient, Barnes and Nobles offers superior customer services and detailed information of their

products on their websites, and eBay has its own uniqueness of product auctioning, where

customers sells to customers directly. Amazon must keep a close tab on these three competitors

and remain as competitive as them.

Another threat is the increasing newcomers into the online retailing business as low barriers of

entry makes online retailing an attractive alternative venture for brick-and-mortar stores. Setting

up a website to sell goods has lower costs than setting up a store offline. In addition, until lately

in 2003, there has been no internet tax on goods, making online retailing a profitable area for the

newcomers.

However, since 2003, Value-Added Tax is imposed in EU, and that slightly increased the prices

of the products. Although this might seem a small threat compared to others, it is important to

understand that in a price-sensitive world that we are living in, a slight hike in the price may

cause some unexpected changes in online consumer purchasing behavior.

Another threat is e-Bay's early entry to one of the world's largest market: China. If Amazon does

not join the rat race into China, Amazon may risk being allowing e-Bay to become a monopoly

Cost effective automated distribution centers


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or a strong competitor. It will be harder for Amazon to battle for market share in this rapidly

developing market.

Strong brand recognition

New technology and software that increases


transaction security.

Wide merchandise category with


attractive
Strategy pricing
Formulation
AMAZON’S SWOT MATRIX

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STRENGTHS – S WEAKNESSES – W
1. Amazon has strong brand 1. High shipping costs which affect
identity as an online retailing advertising activities to reduce.
company. 2. Amazon has high debts level.
2. Amazon owns cost-efficient 3. Amazon’s global operation is very
automated distribution centers. low.
3. Amazon provides strong 24/7 4. Amazon has poor foreign currency
customer service. management for international
4. I-Click technology. transactions.
5. Amazon’s active associate
program diversifies product
category and merchandise line.
6. Amazon constantly updates it
software and technology to
increase efficiency and
effectiveness.

OPPORTUNITIES – O SO STRATEGIES WO STRATEGIES


1.Online retail sales increased 48% to $76 1. Establish distribution in the 1. Expand into countries with
billion in 2002. growing, cheap Asia market to developing economies and basic
2.World-wide Internet users are launch Asian websites (S2, O1, infrastructure (W3, O1, O2, O6)
increasing, especially in Asia. O2, O5, O6) 2. Allow commercial advertising on
3.Number of Latino and Hispanic 2. International websites with Amazon’s website. (W1, O1, O2,
Americans online grew 13% to 7.6 alternative language support to O3)
million. enhance customer service (S3, S6, 3. Create Spanish version of
4.Constant upgrading of internet O2, O4) Amazon.com. (W2, O3)
technology and increased Broadband
usage.
5. Weaker dollar against other currency
boosts exports and domestic sales.
6.E-commerce would represent 18% of
worldwide B2B and retail transactions
by 2006.
THREATS – T ST STRATEGIES WT STRATEGIES
1. Major competitive competitors like 1. Start loyalty or membership 1. International transaction in local
eBay, Wal-Mart and Barnes & Nobles. program. (S1, S4, T1, T2) currency. (W4, T11, T9)
2. A low barrier entry to the virtual portal 2. Set up automated warehouse 2. Tie up with local search engines
generates many new competitors. in free trade zones in Europe. (S2, to increase brand awareness. (W3,
3. Ebay has already ventured into China's T5) T1, T2, T3)
market. 3. Alliance with trusted payment 3. Immediate expansion into
4. Dollar weakening against other credit companies like PayPal to China to capture the untapped
currencies. enhance transaction security and market. (W3, T10)
5. VAT tax is imposed in EU since July to position themselves as the most
2003. secured website. (S4, S6, T6)
6. Internet purchasing is easily exposed to
hacking and identity thefts.

SWOT Analysis

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To formulate a suitable strategy for Amazon.com, seven matrixes have been built and analyzed

to derive a grand strategy. 11 possible strategies were identified and after weighing each of them

against all the internal and external factors, three strategies were selected that were best

addressing to the most critical issues that Amazon need to overcome before pursuing the grand

strategy.

From the SWOT analysis, Amazon could capitalize on its strengths break through into Asian

markets which offers the strongest opportunity for growth. Amazon would be able to grow its

market capitalization further and increase profit moving them towards the direction of achieving

the vision of becoming the world’s most successful online retailing company by adopting this SO

strategy as their Grand Strategy: Growth (SO1). The analysis of other matrixes will further

support this strategy of growth as all Amazon’s factors points to the direction of growth.

If Amazon is to pursue their grand strategy of expanding overseas, they would require a huge

inflow of capital funded either by borrowings or retained earnings. Amazon can do this by

banking in on their strong brand appeal by allowing commercial advertising on their websites as

to generate more revenue (WO2). This revenue would not only strengthen their brand appeal

further but more importantly provide the needed funds for future expansion.

Amazon faces major culture barrier when expanding operations to the conservative Asian

markets. People in Asia are more wary of purchasing goods online because of the fear of online

credit card fraud. Amazon can however, offset this with their superior technology that enhances

transaction security (ST3). By offering payment through PayPal, Amazon will be able to offer

customers a sense of security because their credit card numbers would not be revealed to anyone.

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Finally, to overcome EBay’s strong influence in Asia and at the same time tackle their own

weakness of a low global operation level, Amazon can seek a joint venture with local search

engines to increase their brand awareness in their targeted Asia market (WT2). This would

eliminate their weakness of having low global exposure and offset if not overcome EBay’s

competitive edge.

The BCG, CPM, SPACE, SWOT and QSPM analysis are as follow:

BCG Matrix for Amazon.com

Relative Market Share Position (RMSP)


High Medium Low
1.0 0.5 0.0
+30 Stars Question Marks

25.4% International Division


+20

+10 North America Division


74.6%
0
Cash Cows Dogs
-10

-20

-30

Amazon
Divisions $Sales (mil.) %Sales $Profits (mil.) %Profit RMSP
IGRate %
1. Domestic Segment 2761 70.3 741 74.6 1

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21%
2. International Segment 1170 29.7 252 25.4 1
26%
Total $3931 100.0 $993 100.0

The matrix above shows the relative market share position for Amazon.com for its two main

divisions. Amazon’s sales revenues come from 2 divisions, the North American segment and the

International segment. Included in the North American segment are of the sales of Books, Music,

Video and DVD (BMVD), Electric, Kitchen and Tools (EKT), and other Services. The revenue

from the International segment, on the other hand, comes from sales from Amazon’s German

website (www.amazon.de), French website (www.amazon.fr), and Japanese website

(www.amazon.jp).

Amazon already has the largest market share of the online retailing business in North America, at

about 42.79% in August 2003. As we can see from the graph above, Amazon’s main profit is

from that area, and that area will still be a profit-generating division for Amazon as the online

retailing is still increasing rapidly in 2003, at 21% annually, according a study of Shop.org on

online retailing statistics conducted by Jupiter Research. The North American market is already

saturated and Amazon is growing steadily there. What it needs to do now, is to maintain its lead

as the industry’s largest shareholder and improve on its transaction and delivery services.

On the other hand, although the Amazon’s International segment is comparatively smaller to its

domestic counterpart, it is also a rapidly growing one, at 26% annually, according to another

Shop.org annual study of international online retaling, researched by Forrester Research.

Amazon’s RMSP is 1, as they are the largest online retailer in 2003 with international revenues

reaching 1.17 billion, beating their main competitor, eBay which only projected revenue of $316

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million of the international sales in 2003. Although Amazon's relative market share position is

considered high, it is only because they are still in 2003 the most profitable online retailer

globally and the market leader for the online retailing industry.

However, Amazon may not be able to retain its position as the market share for long, considering

the rapid growth of global online retail industry. With so many Asian markets like China, India,

the South-east Asian and Middle-eastern countries still untapped, and eBay industriously setting

up more international sites and expanding their international coverage, Amazon must penetrate

the Asian market immediately to gain control of these areas. As more and more Internet users

starts purchasing goods online, setting up divisions in China, India, or the Middle-east will be

advantageous and also be able to curb eBay's attempts at hoarding the International market. By

expanding into these markets immediately, Amazon can establish a stronghold in Asia before

eBay does.

Competitive Profile Matrix

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No. Critical S
Fact

1
Competitive Profile Matrix Analysis Advertisi
The Competitive Profile Matrix (CPM) shows EBay leading Amazon with a total score of 3.84

(Brand
as opposed to 3.10. Amazon’s strengths lie in its competitive advertising which creates brand

awareness among fresh internet users. Amazon is also on par with the high ranking of e-Bay in

Awarenes
the distribution efficiency of its products to customers. The contributing factor to Amazon’s

distribution efficiency is attributed to the automated distribution centers in strategic location

around the world which lowers the time of delivery and subsequently all related costs.

Amazon ranks relatively weak compared to e-Bay in its global expansion. This is because

Amazon is less exposed globally and its operations are mainly concentrated in Europe and the

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US. E-Bay on the other hand generates a large portion of its revenue from all around the world,

rendering them a more globalized corporation and giving them the advantage of “know-how” for

future more strategic global expansion. Besides that, Amazon’s weak financial position as

compared to EBay and Barnes & Nobles can be attributed to its high debt to equity ratio. These

debts may require extra attention so that Amazon’s profit may not be affected by the interest

payments.

However, Amazon scores below e-Bay in service quality because e-Bay provides a detailed

feedback on the credibility of a seller based on their previous customer’s comments. Also,

Amazon rates slightly below e-Bay in its website security. This is attributed to the fact that

Amazon did not have a payment service through “PayPal” which provides one of the safest

internet transactions of credits as e-Bay does. PayPal is an online payment system which allows

customers to pay without exposing their credit card number to the merchant. And that 95% of e-

Bay’s purchases go through PayPal. Furthermore, through Paypal, e-Bay can easily manage

transactions between 55 odd countries and region. (PayPal Intergration Considerations

Whitepaper) This would explain why e-Bay has a greater global operation compared to Amazon.

SPACE Matrix for Amazon.com

FINANCIAL STRENGTH RATINGS

Debt level is very high. 2


Improving earning per share. 4
Amazon’s sales and net income margin are steadily increasing by the 5
year. 11

INDUSTRY STRENGTH

Great growth potential due to increasing online users worldwide. 5


Online retail is international and can be easily penetrated. 4

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Profit potential for the online retail sales are yet to realize due to the
constant changing virtual environment. 3
12

ENVIRONMENTAL STABILITY

Very vulnerable to new competitors due to almost nonexistent barrier


to trade in the virtual portal. -3
Have very strong competitors like discounter Wal-Mart and E-bay
who compete by merchandise assortment and price. -3
Price is sensitive to other products online and to brick and mortar
stores due to easy comparison check function and more attractive
promotions by brick and mortar stores. -4
-10

COMPETITIVE ADVANTAGE
Large market share as they are the established online book retailer. -2
Constant up-to-date technology and software. -1
Cost effective automated distribution centers. -2
-5
CONCLUSION
ES average is -10.0 ÷ 3 = -3.33 IS average is +12.0 ÷ 3 = 4.00
CA average is -5.0 ÷ 3 = -1.67 FS average is +11.0 ÷ 3 = 3.67
Directional Vector Coordinates:
x-axis: -1.67 + 4.00 = +2.33
y-axis: -3.33 + 3.67 = +0.34

Amazon.com should pursue Aggressive and Competitive Strategies.

Conservativ FS
Aggressive
e

(2.33, 0.34)

CA IS

Competitiv
Defensive
e
ES is ready to pursue a more aggressive strategy.
The SPACE matrix clearly indicates that Amazon

This location in the Aggressive quadrant signals to Amazon to take advantage of opportunities in

its external environment with their strong internal strengths; which is the SO strategy of the

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SWOT matrix. On the other hand, the location of Amazon in the matrix also shows that it is

bordering the Competitive profile, which means that Amazon has major competitive advantages

in a high-growth industry. Global internet users are on the rise daily, especially in the Asia

market, whose economy is growing rapidly as education and computer literacy rises. Amazon

has all the sources and key factors crucial in reaching and appealing to this potential market.

Amazon’s excellent customer service support, user friendly websites, and established brand as a

reliable online retailer can be used as competitive advantage against competitors when it enters

foreign .com borders.

Amazon’s financial stand is not as impressive as it should be, but nevertheless, its financial

standing is steadily improving by the year, thus Amazon is barely in the Aggressive quadrant.

Amazon has been recording high growth earnings in the past three years, from a (18.2%) net

profit margin in 2001 to a 0.7% net profit margin in 2003. This improvement reflects on the

strong potential growth that Amazon possesses. As Amazon shows promising growth, they will

be able to attract investors and improve credit rating, all of which will be used to fund and

support Amazon’s aggressive pursuit of international expansion.

QSPM Matrix

Quantitative Strategic Planning Matrix (QSPM) for Amazon.com


STRATEGIES ALTERNATIVES

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Target at American
Expand into
Expand into Hispanic and Latin
India
China users
Key Factors Weight AS TAS AS TAS AS TAS
Opportunities
1. Online Retail Sales increased 48% - $76 Billion
0.10 2 0.20 1 0.10 3 0.30
in 2002.
2. World wide Internet users are increasing. 0.09 4 0.36 4 0.36 2 0.18
3. Number Of Latino and Hispanic Americans
0.05 1 0.05 1 0.05 4 0.20
online grew 10% to 7.6 million
4. Constant technology upgrading and increased
0.06 4 0.24 4 0.24 4 0.24
broadband usage .
5. Weaker dollar against other currency help boosts
0.03 - - -
exports and domestic sales. - - -
6. E- Commerce would represent 18% of
0.09 4 0.36 4 0.36 3 0.27
worldwide B2B retail transaction by 2008
*7. Increase in computer literacy amongst
0.04 3 0.12 4 0.16 2 0.08
population.
Threats
1. Major competitors like e-Bay, Wal – Mart and
0.05 3 0.15 2 0.10 3 0.15
Barnes and Nobles.
2. Low barrier entries generates a lot of new
0.07 3 0.21 3 0.21 3 0.21
competitors.
3. e-Bay has already entered China’s Market. 0.06 - - -
- - -
4. Weaker dollar against other currencies -
0.03 - - -
arbitrage. - - -
5. Internet purchasing easily exposed to hacking
0.12 4 0.48 4 0.48 4 0.48
and identity threats
*6. Political instability 0.09 2 0.18 2 0.18 3 0.27
*7. Bureaucracy and red tape 0.02 3 0.06 3 0.06 3 0.06
*8. Sophistication of infrastructure 0.10 3 0.30 2 0.20 4 0.40
1.00
Strengths
1. Amazon has strong brand identity as an online
0.15 4 0.60 4 0.60 4 0.60
retailer
2. Amazon owns an automated distribution center
0.11 4 0.44 4 0.44 4 0.44
that is cost efficient.
3. Amazon provides strong 24/7 customer service. 0.08 4 0.32 4 0.32 4 0.32
4. I-Click technology which enhances customer
service and convenience while browsing on the 0.07 4 0.28 4 0.28 4 0.28
internet.
5. Amazon’s active associate program which
0.08 4 0.32 3 0.24 3 0.24
diversifies product category and merchandise line.

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6. Amazon constantly updates it software and


0.08 4 0.32 4 0.32 4 0.32
technology to enhance website security.
7. Improving earnings per share. 0.07 3 0.21 3 0.21 3 0.21
Weaknesses
1. Shipping costs which reduces advertising
0.12 1 0.12 1 0.12 1 0.12
activities.
2. Amazon has high debts level. 0.08 - - 0.00
- - -
3. Amazon’s global operation is very low. 0.10 2 0.20 2 0.20 1 0.10
4. Amazon has poor foreign currency management
0.06 1 0.06 1 0.06 1 0.06
for international transactions.
Sum Total Attractiveness Score 1.00 5.58 5.29 5.53
*Factors added after re-evaluation of External Factors

Three growth strategies were identified after analyzing all the matrixes. Amazon.com could

either expand into China, India (as they are the two fastest growing economies in the world) or

continue competing aggressively in America itself. According to the QSPM ratings,

Amazon.com should opt to expanding into the Chinese market. China boasts of a strong

infrastructure with its road and railway network linking all four corners of the country, thus

ensuring that Amazon.com distribution in China is not interrupted, as opposed to India, which is

still developing its infrastructure and is not as sophisticated as China’s.

According to a finding by Dr. Ralph F. Wilson, he quotes in his article, “E-commerce in China”

that there are “22.5 million internet users who use the internet one hour a week or more, about

one third of the users of the U.S”. With the Chinese brand Lenova buying over US based IBM,

the demand for IT –experts has increased, leading to a further increase in computer literacy due

to the demand of the latter class of workers. Amazon.com can benefit from this, since there

already exists, a large population that is computer literate and still growing. Although the Indian

market has high online users and even more IT-literate people, e-commerce market is growing

very slowly as compared to their growth of Internet and mobile users. (Ecommerce in India:

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Have You Shopped Online Yet?) Furthermore, according to an article titled, “Autsun: Online

retailer with a difference. Really?” states that only less than 10% of all Indian internet users have

actually shopped online.

Besides that, the Indian market is already flooded with online retailers like e-Bay, Baazi.com,

Sify.com who have established themselves amongst that 10% of Indian internet market. As e-

Bay has only recently entered China and have yet to build their brand in the Chinese market,

Amazon should quickly venture into the untapped Chinese market. From this, China is the market

with greater potential for Amazon to exploit.

Strategy Implementation

The BCG, SPACE, SWOT, and QSPM all strongly pointed to the growth potential of Amazon.

Possessing strong competitive advantage in a high growth industry with a strengthening balance

sheet, Amazon should adhere to these signals to pursue a grand strategy of growth. As the QSPM

strongly indicated, China would be the best location to begin their first step of global expansion.

Amazon’s pursuit of international growth could not be implemented without first overcoming

some of its threats and weaknesses that could pose as potential challenges in Amazon’s growth.

The most alarming problem is Amazon’s debt levels. Funds are not managed properly, and

attractive but not feasible strategies like Amazon’s current pricing strategy is affecting Amazon’s

financial outcome. Instead of decreasing advertising funds, Amazon should look into their WO

strategy to allow commercial advertising on Amazon’s websites. Be it a pay-per-click or monthly

rental charges, Amazon will be gaining revenue to offset some of the shipping costs and maybe

reduce debt and interest level. With this extra revenue, Amazon can maintain their attractive

pricing policy to their customers.

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Amazon may have great brand recognition in the U.S.A, but they might be relatively unknown in

the Chinese market. For example, alibaba.com is a B2B and B2C, C2C online retailer with local

language websites like Amazon. When alibaba.com wanted to penetrate into the skeptical online

Chinese market, they joint into a venture with Yahoo!, which produced a synergy effect, as both

companies tapped onto each other’s competitive advantage. Yahoo! was already a common name

amongst Chinese users and Alibaba.com was a very secured and user-friendly website. Amazon

should look into tying up with a popular Chinese website which users know and trust as their

alliance when Amazon launches in China (WO Strategy 2). Apart from that, taking a cue from

Alibaba.com, Amazon should follow suit and provide international websites with alternative

language support to enhance customer service and trust (SO Strategy 2).

On the other hand, very few Chinese own credit cards, and those who do are reluctant to use

them for fear of fraud. Alibaba.com is a great success amongst the Chinese online buyers.

Alibaba is ‘the country's No. 1 online payment service, with half the market. The system, free

when used for purchases on Taobao (an Alibaba company), has helped increase the confidence

of many online shoppers.’ (Business Week: China’s E-tail Awakening) The Chinese’s distrust on

online transaction security will remain the biggest threat to Amazon as the Chinese consumers

remain "afraid of online fraud, so they don't use them." (Business Week: China’s E-tail

Awakening) Using their ST strategy, Amazon can use their up-to-date technology and software

to constantly enhance transaction security that will increase trust and confidence in the Chinese

consumers.

When Amazon has ensured that their debt levels are managed, brand awareness and recognition

is increased through strategic alliances with local popular websites, and ensures that their

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transaction security is extremely secured, Amazon can then be sure that they are ready to

conquer the developing giant of a Chinese market.

Strategy Evaluation

Strategy evaluation is the appraisal of how well an organization has performed. It includes three

basic activities:

• Review the underlying bases of the grand strategy to evaluate it for critical flaws.

• Measure Amazon’s projected performances and the actual performances in China.

• Take corrective action if their performance does not go according to plan.

As pointed out by the QSPM, the grand strategy for Amazon.com, at present, would be to expand

into the Chinese market. The grand strategy would have to be complemented by 2 other

strategies ; establishing a distribution network in the growing, cheap Asia market to launch Asian

websites (SO1) and tying up with local search engines to increase brand awareness (WO2).

In order to ensure that the company is going in the desired path of revenue generation, the

management at Amazon.com would have to review their financial reports semi-annually or even

quarterly to keep close track of their financial performance. This would provide them with a fast

and broad feedback on the deviance in their current strategies. Comparing actual financial reports

with the estimated financial reports with give them an idea of how deviated they are or can be

from their current goals.

Secondly, they could carry out surveys to gauge the level of customer satisfaction about

Amazon’s products. Being a largely customer service industry, having a high level of customer

satisfaction is of utmost importance to Amazon’s success. Furthermore, conducting annual

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meetings of policy makers to assure the organizations goals are met, would help keep a check on

the achievement of current goals of Amazon. Amazon.com faces a difficulty of predicting the

future with accuracy due to low barrier of entry in the industry. More over with ever changing

technology, Amazon.com have to constantly upgrade themselves to maintain a techno-savvy

image.

After the completion of the first year, if its annual objectives are not met, Amazon would have to

determine corrective actions, in order to reduce the deviation. If the strategy completely fails,

then it would have to pursue a contingency plan, which at present would be to target aggressively

in its already existing market and growing Hispanic and Latin users. Advertising is crucial in

reaching this very unique market to appeal to their indigenous culture.

Conclusion

Amazon.com started out with huge debts but in a very short time, they have been able to churn in

profits (although it is not as high as their competitors). Based on this performance, expanding

into the international market is the best strategy that Amazon.com can pursue at present to reach

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greater growth. In addition, the strategy that Amazon would pursue is in line with the vision and

mission statements.

With a strong brand name and an excellent distribution and updated technology to increase

transaction security and friendliness of the website as its core competencies, Amazon possesses

many competitive advantages over its rivals, not only locally, but in the international market.

Even though Amazon has a strong brand name globally, it would have to appeal to the local

needs of the consumers through appropriate and relevant merchandise category offerings to

ensure their strategy is successful.

Works Cited

“Amazon.com Announces 28% Sales Growth Fueled by Lower Prices.” edgar-online.com 2003.
Edgar-Online. 13 March 2008. <http://sec.edgar-online.com/2003/01/27/0000891020-03-
000248/Section5.asp>.

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Arun. "Ecommerce in India: Have You Shopped Online Yet?" Trac.In. 12 March. 2008
<http://trak.in/tags/business/2007/10/09/india-online-ecommerce-report/>.

Arun. "Autsun: Online Retailer with a Difference. Really?" Trac.In. 11 Mar. 2008
<http://trak.in/tags/business/2007/09/24/indian-online-shopping-retailer-autsun/>.

Einhorn , Bruce and Chi-Chu Tschang. “China’s E-tail Awakening.” BusinessWeek.com. 8


November 2007. 13 March 2008.
<http://www.businessweek.com/globalbiz/content/nov2007/gb2007118_329804.htm?
chan=search>.

“Paypal Integration Considerations Whitepaper.” Webconference.com. 25 July 2007. 13 March


2008.
<http://www.webconference.com/webconferencing/content/documentation/PayPalIntegra
tion.pdf>.

“Statistics: International Online Shopper.” shop.org. 2005. Shop.org 13 March 2008.


<http://www.shop.org/learn/stats_intshop_general.asp>

“Statistics: US Online Shoppers.” shop.org 2005. Shop.org 13 March 2008.


<http://www.shop.org/learn/stats_usshop_general.asp>

Wilson, Dr. Ralph F. "Ecommerce in China." Web Marketing Today. 11 Mar. 2008
<http://www.wilsonweb.com/wct4/china-report.htm>.

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