Project assignment included in Foundations of Business Strategy course (Coursera)

1. Report
 Introduction
Amazon is a company founded in Seattle in 1994 by Jeff Bezos, which at present continues to
be the Chief Executive of the firm. The company started as one of the first to sell goods
through the internet. At the beginning, they began only as an online book store, but rapidly
diversified into selling other products and services, making Amazon the world largest online
retailer. At present Amazon’s business can be segmented in online retail, internet services
and Kindle ecosystem. Therefore, it is difficult to locate Amazon in just one industry.
However, regardless the different lines of businesses, the vision of the company and its main
value have remained the same. The main value proposition continues to be low price and
customer convenience and its mission has always been:
“Our vision is to be earth's most customer centric company; to build a place where
people can come to find and discover anything they might want to buy online.”
 Industry Structure Analysis (Exhibit 1)
Due to Amazon’s constant expansion into new markets, it is important to clearly define the
market segment and its constraints while doing the following Five Forces analysis. In this
case, only the E-retail industry will be considered, due to its core value for Amazon.
Threat of entry is considered to be medium in the online retail industry mainly because sunk
costs can be considered low compared to other industries: it is not expensive to open an
online source and sell products from other suppliers. Due to its ‘apparent’ simplicity, many
entrepreneurial ventures are based within this industry nowadays. Therefore, new entries into
the market are possible. However, it is important to take into account that incumbents within
this industry have an important competitive advantage (Amazon is the main leader of this
industry and therefore, presents a clear example of having a dominating competitive
position). In this case, the competitive advantages of incumbents can be their brand (Amazon
is very well recognized by buyers), their large economy of scales and their learning curves.
Mainly due to its learning curve, the MES (Minimum Efficient Scale) matters a lot in this
industry: a new entrant will hardly be able to offer a more competitive price than Amazon for
the same product. Mainly due to this fact, an entrant into this industry may face retaliation
from the incumbents (cost advantage).
In this case, threat of substitutes is considered medium, because there are some
‘contradictory’ facts. For instance, as mentioned above, switching costs are relatively low due
to the fact that the buyer can change easily from one firm to another one if the price is lower
or equal. In this sense, customers do not face any one-time cost when switching. However,
besides this, elasticity of demand is low. An increase of demand will not affect the market
price of a product, because the capacity of the market will be able to absorb its ‘potential
substitute’ demand without the need of decreasing price.
Author: Albert Graells Vilella
Competitive Position Assignment

2. The customer in this industry is often referred to as the whole mass market. Therefore,
buyers are numerous and from different categories. Though, referring to the concepts from
the lectures, no Monopsony is taking place in this industry: buyers are not concentrated.
Moreover, buyers are segmented for many reasons: although price information is widely
available, price discrimination is possible, because the prices can change without that the
buyer realizes (for promotions, for stock management, etc.).Moreover, bundling of buyers is
possible using the past purchase data of each buyer and analysing its routine. Finally, buyers
have few other options taking into account that Amazon is constantly offering the lowest
prices and that buyers cannot backward integrate.
In this industry, bargaining power of suppliers is very low, due to the wide diversity of
suppliers. They are not concentrated, as the industry works with so many different products,
no supplier can achieve selling a large percentage of the industry purchases. Besides this,
firms within this industry have many alternatives, because there are many suppliers for a
same product (substitutes) and thus, the switching cost is very low for firms. For this reason,
Amazon was able to negotiate to not pay their suppliers until the moment that Amazon sells
the final product. Moreover, suppliers cannot forward integrate because the selling channel
offered by firms in e-retail is unique and a lot wider than the one of the supplier.
A consequence of a high intensity of rivalry is low margins. Low margins are common in the
online retail industry and thus, one can assume that the intensity of rivalry is high. Moreover,
rivalry is low if the numbers of competitors are limited to a few. However, as stated before, it
is relatively easy to enter the online retail industry and therefore, competitors are numerous.
Besides this, online retail industry demand is not constant and moreover, it is continually
varying and moving to new market products difficult to predict. This fact, together with the
difficulty to differentiate from competitors, is an incentive to strong competition for more
market share.
 Competitor Analysis (Exhibit 2)
For this analysis, 4 direct competitors in the e-retail industry have been considered: Target,
Wal-Mart, Ebay and Overstock.com.
Different strategic fields have been considered in order to compare the position of each firm
within those categories: Revenues, Market Share, Brand recognition, Geographic coverage,
Cost structure, Breadth of product lines and Breadth of channel coverage.
Ebay is the only main competitor in terms of market share (Exhibit 3). However, if we take a
look at sales, Amazon’s revenues in 2014 were 88,99B whereas Ebay’s 2014 revenues were
much lower: 17,94B [8]. From these two facts, one can extract that the margins for Amazon
are much better than for Ebay. In this sense, the cost structure is a key of success for Amazon
that provides a competitive advantage towards his main competitor in terms of market share
(Ebay).
Wal-Mart is not considered as a direct competitor because the e-retail industry is not its
main field. However, since their entry in the e-retail industry, it should be seen as an

3. important competitor for many reasons. First, its high grade of brand recognition allows them
to bring their old costumers to new business. In other words, this provides them a solid and
faithful costumer. Moreover, the main advantage of Wal-Mart is its extremely high resources:
both economic and know-how. The 2014 net sales of Wal-Mart were around 476B which
provides an idea of their solid position in the commerce market. [7]
The case of Target is interesting because of its high revenues (Target’s revenues were
71.28B and Amazon’s revenues were 88.99B in 2014 [8]), despite its different market share.
The market share is considerably smaller than the one for Amazon, however, sales revenues
do not differ that much. This fact may mean that Target is able to ask a higher price to their
customers. However, this is a different value than the value proposition of Amazon which is
to offer low prices and convenience to the costumer.
Finally, it is interesting to consider the case of Overstock.com due to its similarity with the
philosophy of Amazon. In this case, at present it is difficult to consider Overstock.com as real
threat for Amazon due to its low market share and low revenues, mainly because they only
cover the US. Moreover, it was funded later than Amazon and its brand recognition is one of
their main key issues to improve. However, the business e-retail structure is similar in some
aspects. They are both based on having a low cost structure in order to be able to offer lower
prices, and they are both more involved in the product line phase than in the channel
coverage.
 Capabilities Analysis (Exhibit 4)
Amazon’s core capability is to be the most convenient place to buy any imaginable good at
the lowest price of the market.
Having the best employees allows Amazon to always be on top and improving continuously.
High skilled employees therefore are a key factor for Amazon. Besides this, the costumer
relationship is very important for Amazon to become the most convenient place to buy. The
key success of Amazon is its customer feedback. The relationship with him is always the
priority, the costumer needs to feels comfortable buying and finding inside Amazon. It is a
pleasure for the costumer to go into Amazon to find what he/she needs. Once again, it is the
most convenient place, at the best price.
Customer relationship should also be considered as one part of the process inside its core
capability, because it is the procedure followed by Amazon to transmit to its costumer that
Amazon is the most convenient place to buy everything. Always keep him happy; the
customer will never have any problem to find what he/she is looking for during the purchase
process. Moreover, this is straightly linked to Amazon’s brand recognition.
One of the key successes of Amazon is its online platform and its knowledge about internet
services. Due to this high level of know-how, some new lines of business such as the web
services have been developed.

4. Its core capability is totally aligned with its vision. The vision states the will to be the most
customer centric company. Amazon wants to be a place where everything can be found and
bought online. In fact, the ability to provide this is its main capability. Amazon provides a
‘comfortable’ competitive advantage with competitors. Finally, it is a sustainable capability
in terms of imitability. Amazon’s core capability is not a tangible asset and therefore, it is
more difficult for competitors to copy or acquire that capability. Moreover, this competitive
advantage is expected to be durable if the company keeps their R&D investment.
 Competitive Position
Referring to generic competitive positions from Michael E. Porter, as it has been mentioned
in class, two main Amazon’s competitors have a clear position within this table. For instance,
Wal-Mart is clearly located in a cost leadership position offering low prices for a wide range
of standardized products. Besides this, Target is located in a differentiation competitive
position, because even if their prices may be considered as low, they try to target specific
types of costumers.
Considering these facts, Amazon’s competitive position is the result of integrated strategies.
This is a difficult position to achieve and firms have to be careful in order to not get blocked
in the middle. However, Amazon has been successfully integrating a Cost Leadership
position together with a Differentiation position. A key success of Amazon is that they are
able to offer low prices and at the same time, be considered a unique place to buy any type of
products. Moreover, this is always in a broad competitive scope.
A strategic map considering two factors is presented in Exhibit 5. Just two factors are
considered in it: product price and product breadth. As a result, Amazon is located in the
same position of Wal-Mart. From my point of view, I would include a third important factor
which belongs to the core value of Amazon: convenience. Therefore, this third factor is added
(Exhibit 6) in order to observe the advantageous competitive position of Amazon along the
other competitors.

5. Annex
Threat of Entry MEDIUM
 Sunk costs are low (-)
 Incumbents have a competitive advantage (+)
 Entrant faces retaliation by incumbents (+)
Threat of Substitute MEDIUM
 Cross-price elasticity of demand is low (+)
 Switching costs are relatively low (-)
Bargaining Power of Buyers LOW
 Buyers not concentrated (+)
 Buyers are segmented (+)
 Buyers have few options (+)
Bargaining Power of Suppliers VERY LOW
 Sellers not concentrated (+)
 Firms have many alternatives (+)
Intensity of Rivalry HIGH
 High Rivalry; Low Margins (-)
 Potential numerous number of competitors (-)
 Incentives to fight can be important (-)
Exhibit 1. Five Forces Analysis
Exhibit 2. Competitor Analysis
REVENUES
MARKET
SHARE
BRAND
RECOGNITION
GEOGRAPHICAL
COVERAGE
COST
STRUCTURE
PRODUCT
LINE
CHANNEL
COVERAGE
Amazon High High High High Low High Low
Target High
Medium-
Low
Medium Medium-Low Medium-High Medium Medium-Low
Wal-Mart High Medium High High High Medium High
Ebay Medium High High High Medium High Low
Overstock.com Low Low Low Medium (US High) Low High Low

6. Exhibit 3. E-Retail US Market Share
Exhibit 4. Core Capability Analysis

7. Exhibit 5. Strategic Map proposed by Board of Directors [9]
Exhibit 6. Strategic Map [Developed by the author]

8. References
[1] http://www.digitalbusinessmodelguru.com/2013/07/analysis-of-amazon-business-
model.html
[2] http://www.bloomberg.com/news/articles/2011-10-25/amazon-profit-plunges-after-
new-products-increase-expenses-shares-tumble
[3] http://www.businesswire.com/news/home/20151119006690/en/
[4] http://retailindustry.about.com/od/retailbestpractices/ig/Company-Mission-
Statements/Amazon-com-Mission-Statement.htm
[5] https://stratechery.com/2013/amazon-benefits-vision/
[6] http://www.slideshare.net/ell82iza/porters-5-forces-model-40341408
[7] http://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-
annual-report.pdf
[8] http://www.marketwatch.com/investing/Stock/AMZN/financials?CountryCode=US
[9] http://www.slideshare.net/gabbibaker/strategy-presentation-on-amazon