Amazon. com Real-Time Case 2 12/1/2009 Brief History of Amazon. com Jeff Bezos, an entrepreneur, created Amazon. com in 1994; the business was originally run out of his garage in Washington. With the additional investments from Nick Hanauer and Tom Alburg, Bezos was able to create the more user-friendly website that we are used to. As Amazon. com’s customer base began to grow Bezos realized that he was going to have to add variety to the products Amazon. com offered. Bezos hit on a successful idea when he added the feature that allowed customers to write their own book reviews.
In 1997, Amazon. com went public and it continued to increase its product lines to include CDs, movies, and toys to its inventories. Amazon. com was profitable, but in 2001, Amazon. com reported a fiscal loss and over a couple of years they laid off over 1000 workers. But, this set back did not discourage Bezos instead he came up with the idea of joining forces with other retailers to sell their products online through Amazon. com. So, through hard work and determination Bezos has been able to turn the simple online bookstore from its early beginnings into the global phenomenon that is Amazon. om. Competition and Industry An industry is the group of companies that produces competing products or services that a company operates in. Amazon. com has a wide variety of products and services so it is difficult to pin down exactly what industry Amazon. com competes. According to Yahoo Finance, Amazon. com’s industry market is Catalog & Mail Order Houses. But, we believe that Amazon. com is so much more. A key part of industry is competition. Amazon. com has such diversity that they don’t appear to have traditional competition. Amazon. om’s competition comes from the different segments of its business. EBay is Amazon. com’s prime competition for its online auction services. Barnes & Noble and Books-A-Million are Amazon. com’s primary competition for its book sales. But, no one company has stepped forward to be able to compete with Amazon. com as a whole. SWOT Amazon. com has become the king of its own private little industry. The only problem with being the king is that everyone wants your throne. While Amazon. com has many strengths and opportunities it has threats and weaknesses, too.
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Strengths: •Customer relationship management and information technology – Amazon. com compiles data on its customers and this enables them to offer specific items and/or bundles of items to individuals •Amazon. com is a profitable company. They have a large portion of the market share. •Amazon. com is a recognizable brand name. It is a global brand name. Amazon. com inspires trust in its customers. Weaknesses: •Too much diversity in their product line and Amazon. com could risk damaging its brand name.
There is the potential for confusing their clients •Shipping costs could be a deciding factor on whether a customer buys from Amazon. com or goes to a traditional store. More online retailers are offering free or discounted shipping and some, such as Wal-Mart, offer site-to-store free shipping. Opportunities: •The ability to further expand into Global markets. Amazon. com bought Joyo. com in 2004; effectively, moving into the Chinese market. •Amazon. com can use its expertise to mentor other major store groups. Amazon. om has had collaborations with Target, Toy-R-Us and the NBA. •Amazon. com can pair up with the public sector to offer services to their customers. Amazon. com working in conjunction with the British Library in London has created a service that allows their customers to search for rare or antique books. Threats: •By mentoring other major store groups Amazon. com could potentially create a true competitor. •International companies may pose potential threats as Amazon. com expands into their territories. E-tailer success Amazon. om has become a tremendously successful e-tailor without ever having an actual physical store. Part of the reason for Amazon. com’s success without having a traditional retail outlet is partly due to the fact that they partner with businesses that already have traditional retailing outlets, for example, Gap and Land’s End. They offer products are their website that are available in traditional retail outlets, but they are able to offer products at competitive prices. The majority of the products that Amazon. com sells are products that are available in stores.
They sell brand name merchandise that people are already familiar with. So people come to Amazon. com, and they buy a product that they have already seen in stores. It is easier to sell a product online on a site like Amazon. com when they offer brands that consumers already are familiar with. Amazon. com has built a brand name that customers can trust. They also partner with companies such as Borders and AOL that people use daily. Customers have been using these partners for a while now, and they know and trust the company. Amazon. com is also extremely well advertised.
It is advertised on websites all over the internet. Advertising is the key for a company like Amazon. com. Word of mouth advertising is a huge plus for Amazon. com. People see their name everywhere they go on the internet. Once the customer visits the site initially, they see wide variety of products that are offered and the competitive pricing that they have. Then they begin to use the site more frequently and they tell their friends about Amazon. com. Now, Amazon. com has been around for so long, and people are now familiar with the site.
Customers now trust the site, and they become frequent shoppers on the site. Thanks to Amazon. com’s loyal customer base they are able to enjoy a successful e-tailer business without the need for a traditional physical retail outlet. Hazards of the internet Given its internet base, Amazon. com’s success may be easily duplicated by copying its web materials. However, all forms of business must consider external threats to an organization of this nature. All successful businesses face the threat of competitors that produce similar products or services and adopting similar strategies.
Substitute products and alternative offerings produced by firms in similar industry that satisfy customer needs, are one of the five basic competitive forces that effect industry structure. Firms that operate in industries with few or no substitutes are more likely to be profitable. Amazon. com has significant market share. Market share is the percentage of total market sales attributed to one competitor. It would be difficult for a new competitor to simply copy Amazon. com’s web materials and develop a successful business.
Amazon. com’s market share likely gives them bargaining power as a buyer. The buying power of Amazon. com may also give the company distribution channel ties based on long-standing or even exclusive relationships. The new entrant must create its own channels of distribution. New entrants may also face problems related to capital requirements, economies of scale, brand identity, product differentiation, and slow industry growth. Easy access to strategies due to web copying is an inherent disadvantage of internet businesses.
However, a company cannot develop a successful business by simply copying a competitor’s strategy. As described above, the existing web based company has many advantages that may deter the success of its competitor. A trustworthy established brand name such as Amazon. com may make it difficult for competitors to enter the market. Barriers of entry are evident in internet based businesses as well as traditional businesses. Customer Base It is possible for Amazon. com to maintain a strong customer base without an extreme emphasis on low prices because Amazon. om is so much more than an ordinary e-tailer. Amazon. com offers a wide range of products ranging from the latest digital camera all the way to the hottest children’s’ toys. Amazon. com offers a variety of products that allow an individual to purchase all their items at one convenient web location. Other features that contribute to Amazon. com’s amazing customer base include free shipping incentives, low shipping rates, and personal sales and auctions; also their website allows the customer to choose if they wish to purchase a new or slightly used version of their desired product. Amazon. om compares prices for the specific item you are looking for allowing you to find the cheapest price available. In the case of Amazon. com their user friendly website and excellent customer service allows them to maintain and expand their customer base; they do not need to fully worry about having the lowest prices. Another aspect of Amazon. com that allows them to outshine their competitors is the strong advertising that exists; almost everyone knows of Amazon. com and or has used their services before. Amazon. com has used advertising that allows them to reach customers globally. We believe that Amazon. om’s continued success and strong customer base is firmly based on the website’s user-friendly features and customer service that Amazon. com has to offer not simply on their prices. Conclusion Amazon. com needs to continue providing their user-friendly website and excellent service. Amazon. com needs to be aware of potential competitors when entering new foreign markets. They need to be aware of seasonal promotional opportunities and not confuse customers with too many new product lines. Amazon. com needs to continue to build their brand into a globally recognized trustworthy name.