Amazon’s Corporate Strategy: Diversification And Competitive Advantage

Amazon’s Diversification Strategy

Question:

Discuss about the Global corporate strategy and trade policy.

Corporate strategy is about long-term vision of the organisation and clearly defined goal in order to create corporate value through motivating the employees. As stated by Rothaermel (2016), corporate strategy of the organisation strives for the continuous development of the organisation and it tries to achieve customer satisfaction. In this study, there are two parts; the first part is based on case study of Amazon Go and the second part is based on food market chain of Amazon. Amazon Inc is one of the largest online retailers in the globe. This study aims to highlight Amazon’s diversification strategy to enter offline world and Amazon’s competitive advantage through acquisition.

Initially, Amazon followed the online business model under the idea of a retail business where they could grow in the market. As stated by Sull et al., (2018), Amazon always measures the programmes and effectiveness of the investment in different sectors analytically and they want to learn from both the success and failure. Amazon always focuses on the customers’ experiences as this one is the marketing message of the organisation in the online value proposition. Recently, Amazon has completely revised the business model and it has been combining the offline and online business. This time, Amazon opened its Amazon Go store and it is a new type of ‘no-checkout’ required store. Amazon followed the technological innovation in opening the new store where the customers do not need to wait in line in the physical stores to pay the bills. The customers can just walk out after the purchasing process is over without paying the bill. Amazon has introduced the Just Walk Out Technology using the senor vision, computer vision and deep learning as this technology will help to detect the products and it will add the products to the virtual cart.

Amazon is taking the diversification strategy in order to increase the market share in the offline retail market. Therefore, Amazon has taken the diversification strategy as they are thinking it may generate the greater profit margin with providing competitive advantage (Amazon.com, 2018). Amazon GO strategy of Amazon Inc can be taken as the mixture of heterogeneous and concentric diversifications. Amazon is taking the help of technologies and this decision would help to lead towards additional opportunities. In concentric diversification, the company adds new services or products to utilise the potentiality of the organisation. When the company is moving to new service, it can provide the benefit of synergies the diversification (Johnson, 2016). Diversification of Amazon will provide value depends on how the markets would function. Amazon has taken the strategy of diversification of their resources. Amazon has diversified products range and it has good resources, warehouses and customer database.

Many of the firms find diversification to gain synergies within the related business for the economic scale and scope (Bowen, Baker & Powell, 2015). This type of synergy helps the business to share the resources and core competencies as well. In addition, diversification provides a power to build a market as it avoids dependencies on parent organisation and threat to the competitors.

Amazon’s Competitive Advantage in Retail Industry

1. Attractive test: Amazon aims to ensure that its diversification targets towards an attractive industry of offline retail. Amazon assesses the external environmental factor to determine the attractiveness of the offline retail since Amazon has been researching about new technologies for four years. This diversification is about investing in the pipeline for more opportunities and Amazon Inc has taken the same strategy where the parent brand follows the structure to access the potential opportunities without overlooking the performance of the present (Grewal, Roggeveen & Nordfält, 2017).
2. Cost of entry test: Amazon ensures the cost of entry in the new market does not capitalise the future profits. Amazon has been spending money on technologies and cost of entry to offline retail takes money to set up the physical stores as well. Amazon needs to take the test as it is the culling point of diversification of business. Amazon has had no previous experience to manage physical stores and in a cyclical business, the strategy of Amazon’s diversification can help to regulate the cash flow.
3. Better of the test: Amazon’s new business Amazon Go is new on the market and Amazon will try to ensure the competitive advantage in the market. The competitive advantage of the Amazon Go is the amalgamation of technology and offline market. Competitive advantage needs to be fit into the firm’s portfolio and Amazon needs to go with the diversification. Amazon will definitely share the resources and capabilities with Amazon go in the long run. Amazon is trying to capture the emerging opportunities and Amazon takes the venture of AI and technological innovation in order to generate the substantial profit in near future (Johnson, 2016). The biggest competition in the USA market of Amazon is Walmart and Walmart has both online and offline presence in the retail market.           

Corporate parenting and portfolio management strategies         

There are mainly four types of portfolio management, restructuring, transferring skills and sharing activities (Rothaermel, 2015). Amazon Go is the corporate development of Amazon Inc where Amazon Inc revised the online business model by portfolio management. The Amazon Go store that has already opened in Seattle is large and it has 1800 soft and it is good for conveniently shopping for the customers (Amazon.com, 2018). Portfolio management is the art of investing in the business to earn a maximum profit within the right time frame. Jeff Bezos needs to expand the business into a different genre. Amazon Go is a unique concept where the customers do not need to stand in the queue. The customers can save their time and they can purchase with ease. Amazon Go shops will also have the sales executives and people will also work in the kitchen. Amazon Go will also provide ready-to-eat, help customers executives and stock shelves. Amazon has been working on the technology and Artificial Intelligence to bring success in the offline retail market. The customers just need a Smartphone with Android or iOS platform.

Three types of strategic analyses may help Amazon to find parenting advantages.

• First, Amazon needs to make a list of challenges facing in their business. Each of the challenges needs to evaluate for containing parenting opportunity by an organisation (Grant, 2016).
• Second, Amazon needs to analyse the strategy which can influence most on the business.
• Thirdly, Amazon needs to find out the similar parent companies to see they can discover the similar types of parenting advantages.

Jeff Bezos’ concept of offline retail will be a major threat to the conventional retailers; however, this can eliminate the employees from the retail stores. In long-term this Amazon Go shops can be beneficial for Amazon as in recent time, the customers do not spend time waiting in the queue. The customers are now tech-savvy and they use the Smartphone on daily basis. Amazon has amalgamated technologies with the offline retail shopping. Amazon R&D team needs to take the advantages of a multi-channel environment. Amazon can transform the new technology and the concept of Amazon Go can push the conventional grocers to mix technologies into the customer satisfaction. Amazon can also define disruption as it mixes the online platform with physical shopping (Cusumanno, 2017). Amazon should collaborate with automakers in order to use the technologies to help the automation. Therefore, Amazon needs to improve the technology and they need to assemble the technology with the human resource in order to be successful. Technology needs to be improved as it transforms human to the software-based personalised app.

Amazon made the acquisition of Whole Foods in 2017, August at $13.7 billion. Whole Foods has been swiftly transforming under the control of Amazon. Both the companies have been doing the changes immediately from internal restructuring to cutting the costs.

Amazon is a global retailer and the organisation has been taken the strategy of cost leadership and products offering to have a competitive advantage. Amazon operates in the global market with a thin profit margin for innovation of business process. Amazon has its own principles in to focus on the competitors’, operational excellence, invention, long-term thinking and customer obsession. Core competencies of Amazon come from the resources they have, core competencies of Amazon are IT equipment, warehouses, stocks, online retail experiences, relationship with suppliers, brand and supply chain. 

Corporate Parenting and Portfolio Management Strategies

Table 1: Resource and competencies of Amazon

Table 2: VRIO Framework of Amazon

(Source: Self-developed)

Amazon provides valuable and rare service in online retail, in product ranges and partnership with suppliers. Amazon gains competitive advantage through regularly penetrate to new niche customers’ segments (Rugman & Verbeke, 2017).

• Amazon tries to reach new customer base through increasing the products delivery to far section. Amazon has a good relationship with sophisticated global logistics and it has done successful business diversification.
• Diversification of Amazon is related to the Amazon Today, Amazon E-book reader, Kindle and recently Amazon Go. Amazon owns the sites like 6pm.com, DPreview.com, Diapers.com, Zappos and IMDB.
• In addition, Amazon has its warehouse across the globes and it has its own aeroplane. Amazon has been using the robotics technology in supply chain and logistics. Amazon provides ‘same day’ delivery at the very low price and in special cases; Amazon also gives 4 hours delivery also.
• Moreover, Amazon has started Prime memberships to whom it offers special services. Amazon online sales touched the growth of 31% and 26% for the e-commerce sales in the year 2016 (Grewal, Roggeveen & Nordfält, 2017).
• Amazon has strong bargaining power with the suppliers and it matters as it shows the numbers of people go to Amazon online shopping. Jeff Bezos’ strong leadership capability is another reason behind the gaining maximum resources from investors and employees.

Whole Foods Market has been selling the food products in the USA without flavours, colours and sweetness. It had its stores in North America and the UK. Amazon bought this organisation and it has it’s headquarter located in Austin, Texas. Core competencies of Whole Food are the highest quality, brand reception, dedication to the social ethics, industry best service and strong supply chain. 

Table 3: Resources and competencies of Whole Foods

Table 4: VRIO Framework of Whole Foods Market

(Source: Self-developed)

• Whole Foods has a competitive advantage as they sell food without preservations. Whole Foods has been donating 5% of annual profits for a charitable reason (Schill & Blankenship, 2017). This social work cause is one such competitive advantage of the company as this store level donation increases the sales.
• This organisation ranks third on the USA Environmental Protection Agency’s list as it got an award for green power using in business. Whole Foods Market gains competitive advantage through highest buying nature of green power from nationwide.
• Whole Foods provide organic and natural foods to the customers and it has direct competition with the fresh market. Whole Foods has a strong brand name in the US market as it has already developed a brand name in the market.
• In addition, Whole Foods tries to maintain good store quality and best customer services.

Amazon made the acquisition of Whole Foods Market for $42 per share and this transaction has been done in all cash. Amazon is going to add the feature of ‘click and collect’ in Whole Foods Market stores using distribution centres. Food Retail industry has been observing changes in last few years and fast-changing technology and consumers’ preferences are the major reasons behind this (Forbes.com, 2018).

Acquisitions and alliances are important pillars of the growth strategy of an organisation, Amazon followed both. Amazon can check the relative merits of both the systems as two strategies differ in many of the courses.

Table 5: Dyer’s Framework of acquisition strategy

(Source: Dyer, Kale & Singh, 2014)

In addition, Amazon will not make any brand recognition for Whole Foods as it has already market recognition with good in-store customers’ experiences. Whole Foods provides local fresh ingredients and amazing products. Whole Foods has already observed 3% sales growth in first half of September 2017 (Forbes.com, 2018). Amazon cut the price of the products of Whole Foods and operating income may turn negative. Amazon has taken the diversification strategy to enter food retail industry through acquisition. In the food market, an acquisition is the value-adding corporate strategy and it is a good fit with the needs of the business. Acquisition strategy has been taken understanding the dynamics of its competitive environment. Amazon can use the e-commerce imitation of the business model and delivery of products with value chain must be supportive. Acquisition of strategy of business will help to obtain quality employees and additional skills. It will help to access funds and valuable assets of the organisation (Sull et al., 2018). Amazon will get benefits as Amazon’s online business reached the saturated market.

The food industry has been going through changes to rethink about the recent tradition of strong e-commerce model. Amazon’s strategy of buying the Whole Foods mitigated the market demand and a new food retail market competition will increase through this (Melville, 2018).

• Whole Foods has been facing the issue of lower shopper footfalls into the stores and the organisation was suffering from lost sales. Barclays’ executives visited the company and they found that most of the shelves of Whole Foods were empty and the some of the food items were appeared to be deteriorated (Grewal, Roggeveen & Nordfält, 2017).
• Organisations with multiple businesses can do better when the organisation can add better value to the business process. Amazon has to think about the overlap of the customers, marketing, customers and distribution channels.
• Resources and capabilities of Amazon do not match with the Whole Foods’ resources and capabilities. Contrasting two retail business cannot be matched when both the organisations have been following different strategic management (Grant, 2016).
• Whole Foods has been operated with the strategies of differentiation based competitive advantage where Amazon follows pricing strategy. Whole Foods targeted only a particular socio-economic group with quality, in-store experience and customer-service, on the contrary, Amazon has been targeting all (Cnbc.com, 2018).
• It is not the impersonal strategy, the corporate culture of the two organisations are different as Whole Foods has enlightened values of social work and healthier customers. Brand image is a very fragile thing and Whole Foods is associated with clear CSR and social work. Therefore, a cultural clash of two organisations is clear.

Conclusion 

It has been observed in Part A that Amazon Go shop has started with the new idea of ‘check out free’ shopping where the customers can shop without delay. Amazon’s strategic diversification can be described as business horizon where Amazon has been trying to focus on machine language with automation and Artificial Intelligence (AI). Jeff Bezos needs to ensure the continuous development of technology and sufficient use of human resources in the Amazon Go shops. In Part B, Amazon’s decision of purchasing Whole Foods has been evaluated and it has been observed that Amazon can gain competitive advantage from this acquisition. It has already been gained 3% growth in market share. However, both the organisations differ strategic marketing technique.

Reference List

Amazon.com: Amazon Go. (2018). Amazon.com. Retrieved 26 February 2018, from https://www.amazon.com/b?node=16008589011

Bowen, H. P., Baker, H. K., & Powell, G. E. (2015). Globalization and diversification strategy: A managerial perspective. Scandinavian Journal of Management, 31(1), 25-39.

Ciabuschi, F., Forsgren, M., & Martín, O. M. (2016). Value creation at the subsidiary level: testing the MNC headquarters parenting advantage logic. Long Range Planning, 30, 1-15.

Cusumano, M. A. (2017). Amazon and whole foods: follow the strategy (and the money). Communications of the ACM, 60(10), 24-26.

Dyer, Jeffrey H. P, Kale, & H, Singh (2014), When to Ally when to acquire, Harvard business review, 82(7-8), 108-188

Expósito, A., & Velasco, F. (2018). Municipal solid-waste recycling market and the European 2020 Horizon Strategy: A regional efficiency analysis in Spain. Journal of Cleaner Production, 172, 938-948.

Forbes Welcome. (2018). Forbes.com. Retrieved 26 February 2018, from https://www.forbes.com/sites/jasonbloomberg/2017/06/23/amazons-whole-foods-strategy-its-not-what-you-think/#21799436a822

Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. New Jersey: John Wiley & Sons.

Grewal, D., Roggeveen, A. L., & Nordfält, J. (2017). The future of retailing. Journal of Retailing, 93(1), 1-6.

Johnson, G. (2016). Exploring strategy: text and cases. Sydney: Pearson Education.

Melville, A. (2017). Amazon Go Is About Payments, Not Grocery.

Op-Ed: Here’s the one glaring problem with the Amazon-Whole Foods deal. (2018). CNBC. Retrieved 2 March 2018, from https://www.cnbc.com/2017/06/16/heres-the-one-glaring-problem-with-the-amazon-whole-foods-deal-commentary.html

Rothaermel, F. T. (2015). Strategic management. New York: McGraw-Hill Education.

Rugman, A. M., & Verbeke, A. (2017). Global corporate strategy and trade policy (Vol. 12). Abingdon: Routledge.

Schill, M. J., & Blankenship, C. (2017). Whole Foods Market: The Deutsche Bank Report.

Sull, D., Turconi, S., Sull, C., & Yoder, J. (2018). Four Logics of Corporate Strategy. MIT Sloan Management Review, 59(2), 136-142.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order