Economic Analysis of Business Practice
The goal of cost leadership strategy is to produce products and services with a lower cost than the competitors do. The key to achieve this strategy are the economies of scale. For Amazon to succeed with the cost leadership strategy it has to provide the widest range of products to achieve the economies of scale and benefit from the low costs of displaying those products on its online marketplace. In a result, the business became the largest online retailer in the world.Amazon delivers only the best quality services and products. It is reliable, convenient, offers one of the lowest and fastest shipping, the lowest price, many free additional features with its services and has the widest selection of goods. Amazon has a brand reputation for great customer service. Amazon has a number of fulfilment warehouses in each market it operates. The warehouses are geographically spread in each country so the goods could be dispatched faster and with lower cost.Myeshia Wagner
This is a very informative video and it demonstrates how Amazon has really changed the face of how consumers obtain their products in the modern era. The implementation of Amazon's speedy delivery systems have led to the steady decline of traditional shopping methods. Consumers no longer have to wait a week for their product to arrive, Amazon now offers deliveries within 1-2 hours! Recent years of Black Friday sales have declined, and many have cited the increased use of Amazon and other types of online shopping services.
In business success is achieved only through strategies and that’s what we see here. I am lucky to do a work like Forex, I am able to work out great strategies and that always leads to serious profits for me while another benefit for me is to work through OctaFX broker, it is a regulated and worldwide recognized broker and have excellent benefits that always makes me trade smoothly and that is really the way towards helping me make profits.
Truly in business success is achieved only through concise strategies, and after watching the video I think that is what Amazon has succeeded in doing. As a monster competitor to brick and mortar stores as well as online merchants, they enjoy economies of scale far beyond their online competition and can use that power to offer hyper-aggressive prices, fast and cheap shipping.The question many economists ask is that can any merchant compete with Amazon at all? I was little taken aback after reading Jeff Jordan’s article “How to compete with Amazon.” Jeff asserts that it is very possible by applying the following strategies: selling differentiated products, developing your own products, merchandise product differently, deploying alternative distribution strategies, and leverage unique advantages.If Jeff research further he will discover that many merchants have already tried or trying to compete with Amazon with one or more of these strategies. Unfortunately they are nowhere near Amazon’s achievement. Even a number of online retailers are trying to cripple Amazon with products that can be largely insulated from direct price comparison and are not distributed or searched for on Amazon, because they are proprietary and the producing company can elect not to have them sold by other online retailers, they seem not to be having the edge over Amazon. Anyone else? Zappos is however close to leveraging Amazon’s unique advantages. But will Amazon always be the “king”?
I find Amazon to be an impressive organization that is changing the way consumers purchase products. Amazon competes primarily in the online retail space. But they offer many other services including cloud storage, video streaming, music streaming, school book rentals, and advertising services. Amazon has recently placed a large focus on developing their national and international retail distribution services in a highly efficient manner. Members pay an annual membership fee for access to unlimited streaming of movies and music as well as free two day shipping all year long. This alone allows the Amazon members to make purchases without leaving the comfort of their home or office and have the product in their hand in two days. Consumers can shop from their couch and it is extremely easy to obtain products. Amazon has changed the consumer retail experience by streamlining the shopping and order delivery system in order to take advantage of economies of scale.
Amazon has really taken low cost distribution to a different level. The analogy of having a package pulled off the shelf and ready to ship in the amount of time you can sing the twelve days of Christmas really puts the extent of their technology into perspective. As stated by Froeb, strategy involves matching resources and capabilities of a firm to the opportunities and risks in the external environment and creating a competitive advantage out of this match. First, if we look at the external environment, it seems the biggest risk is intense competition. As more and more brick-and-mortar companies venture into online sales, Amazon’s push to stay ahead of the game increases. However, the opportunities in this environment are ever growing and changing. More and more people are coming online in more ways and they are looking for consumer goods cheaply and quickly. Technological advancements in both manufacturing and consumer use have been imperative for Amazon’s success. Finally, Amazon’s resources and capabilities have to do with both their global presence and advanced logistics mentioned here. Lastly, Amazon has gone beyond these capabilities to enter into online storage, video streaming, apps, music and more. Entering into these arenas will help Amazon maintain its competitive advantage but it must stay ahead of the game through R&D and innovation.
There are two factors which contribute to competitive advantage, delivery the same product or service at a lower cost or delivering a better product or service at a similar cost and Amazon’s business strategy has exploited both of these ideas.Amazon sells the same products that hundreds of other companies around the world meaning their advantage has to come via other avenues. Spending their capital on streamlining the distribution process has proven to be a very effective method and in return they have been able to lower their internal costs to fill an order to maximize profits. By taking this approach it opens up the door to providing discounted costs to the consumer as well.Without discounting prices to the customers, Amazon has positioned itself to be the preferred shopping website for many people simply because of delivery. As the video points out, within an hour an order can be picked and on a truck. That’s amazing. For a consumer, knowing that they can receive a product at their door in the least amount of time can be a deciding factor and further differentiate Amazon from its competition.Working in supply chain I know that the process Amazon has in place are something that other companies envy. Until the point where others are able to duplicate the success they’ve had with fast response alone, Amazon will continue to earn positive economic profits and stay ahead of the competition.
Amazon is a company which fascinates me because they are so massive in their reach and they are an open retailer where anyone can shop and the products offered are endless. Amazon has been aggressively growing over the past decade as an online retailer but also through other sections of business such as mobile and electronic devices and also in their self branded product offerings or acquisitions. What I do find amazing is their approach to assure speedy delivery of all these items to people worldwide and how they can do it while being organized. In order for Amazon to keep its products on the website low, they have taken the approach of putting their fulfillment centers closer to airports so that the delivery and supply chain costs are kept low. That being said, Amazon also loses a lot of revenue to shipping costs and this makes the margins on the products low. Amazon, being the forward thinking company they are and from the a computerworld.com article titles “What Amazon is doing with its supply chain could devastate the competition,” states that in order to keep their shipping costs low plans to lease planes and registering ocean freight to compete against UPS and Fedex in order to lower costs and expedite shipping worldwide. By cutting out the middle men to deliver the goods, Amazon will not only save money but also increase revenue by leasing out space to other companies to ship their goods. This would be a major move for Amazon and also have an impact on other businesses such as the shipping and carrier companies who Amazon has used. It is a big plan and big picture but Amazon has already taken the initial steps to put this sort of plan in place. It will be interesting to see where it goes and how significant the impact will be on the overall landscape once the plan is up and running. http://www.computerworld.com/article/3032656/retail-it/amazons-supply-chain-move-could-prove-devastating.html
This was an informative video one can see how Amazon is staying one step ahead of the competition. Amazon which was founded as an e-commerce business may have started with all the attributes of Porter’s Five Forces, but technology has eroded this. Today, there are no barriers for entry in e-commerce. The buyer has power for they can search several web sites in a matter of minutes to find the best price. The supplier’s power is high for they sell to brick and motor stores as well as other e-commerce sites. This results in Amazon having to compete with other rivals in e-commerce which allows customers to choose a substitute (Froeb, 2016). One of the reasons Amazon has been able to keep their competitive advantage is that they invested in their distribution facilities. In 2015 alone they spent $3 billion in building and upgrading the technologies in these centers around the globe. For example, robots now bring the ordered item to a worker who then packages the item; it is then sent on a conveyer belt to be automatically labeled. This has allowed Amazon to increase its worldwide shipping speed to 500 items per second (Hook, 2015). This shipping speed gives Amazon the competitive advantage over other firms (Froeb, 2016). Amazon also offers a complementary product (Froeb, 2016) called “Prime”, for a yearly fee. One of the benefits of prime is it gives the customer 2 day free shipping on most of its products. On a personal note I can attest to “Prime” membership the benefits a customer receives is well worth the fee. This has allowed Amazon to build its own ecosystem (Froeb, 2016). Last Cyber Monday was my first time. I did all my shopping on Amazon the easiness of ordering and speed at which I received the items has made me a loyal customer. “I am never going back to shopping at brick and mortar stores for holiday gifts again!”ReferencesFroeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). Managerial economics: A problem solving approach. Boston, MA: Cengage Learning.Hook, L. (2015). Re: Amazon's strategic advantage: Fast and low cost distribution [Web log comment]. Retrieved February 26, 2017, from https://managerialecon.blogspot.com/2015/12/amazons-strategic-resource-distribution.html
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