Strategic Management and Business Policy   ( BUS495)

 

 

 

College of Business and Administration

Strategic Management and Business Policy  

( BUS495 – Section 234 )

Term 192 Semester 2019-2020

 

Course Instructor:

Dr. Youngen Park

 

 

 

 

 

 

 

 

 

 

Outline

  • Introduction

 

  • Target Market

 

  • Industry Analysis

 

  • Company Analysis

 

  • Strategy Analysis

 

  • Comparison

 

  • Discussion

 

  • Conclusion

 

  • References

 

 

 

Introduction

The e-commerce industry has changed the way the society does business in the contemporary society whether in retail products or in business-to-business. Both local and global companies depend, to a great extent, on e-commerce to deliver products to clients easily and efficiently. Prior to the spread of the internet, businesses used to rely on locations to get clients and maximize profits but such has changed because online platforms provide good opportunities to sell products and deliver on organizational goals and objectives (White, 2018). The e-commerce industry has created a global marketplace where even the smallest businesses have national and global presence where they can easily engage in business activities. As such, the brick-and-mortar businesses have turned to the expansive opportunities created by the internet where they use websites to complement physical stores to create a global outlook and deliver on customers’ needs (Daniels, 2017). The scope of e-commerce marketplace cannot be measured owing to its expansive nature and the challenge of determining its beginning and the end of the old world economy.

There are various types of e-commerce and an investigation into the same provides an insight on how they work and their influences on economies. The three main types include online retail, digital advertisement and business-to-business. Online retail deals with the sale of consumer products, such as apparel, electronics and accessories, in online platforms (Gahlot, Singhal & Kendre, 2019). It has realized tremendous growth as evident in the data from the U.S. Commerce Department which reveals that it resulted in more $194 billion in sales in 2011 and has been on a constant increase of 13% annually. Second is digital advertising where advertisers spend increasingly high amounts of money on digital advertising such as dominant brands that partner with e-commerce and logistics companies to improve their global presence to make efficient delivery of products to customers (Tanner, 2018). Digital advertising competes with television advertising and is expected to exceed the later owing to the higher access to the internet as compared to television access and viewership.

Third is business-to-business (B2B) that has recorded massive growth and development as evident in the 2013 data where it yielded more than $560 billion in sales. The main players include infrastructure and networking companies such as Cisco, Oracle Corporation, Alcatel among others (Haines, 2017). Additionally, enterprise systems companies such as IBM and SAP have also exploited business-to-busines ventures to increase profits and revenues and delivery of organizational goals and objectives. Other B2B segments that record constant growth include cloud computing, and social networks and advertising which include them dominating brands in the market such Google, Amazon and eBay (Pratt, 2016). An analysis of Amazon and eBay helps to better understand how the industry works and strategies employed therein to inform on operational issues that inherent companies should consider to realize the delivery of efficient services to customers.

 

Target Market

The target market for the e-commerce industry is mostly the youth with advanced technical knowledge who are used to electronic devices and can easily navigate online sites to purchase products and services they need. The e-commerce industry has grown in the Kingdom of Saudi Arabia (KSA)  as evident in the high revenues earned from the same. The industry earned a revenue of US$ 1.715 million in 2019 and has been on a consistent growth of 2.7% annually where it is expected to have a market volume of US$1.909 million by 2024. The biggest market segment is Toys, Hobby & DIY with a market volume of US$505 according to 2019 data. In most cases, the target market are people below 40 years. Secondly, the working class are the biggest internet buyers because they lack the time and opportunity owing to the busy nature of jobs and lack of time to access physical shops to purchase items they might need. Furthermore, the end users, as opposed to retailers, form another customer segment for this industry because they do not seek to maximize profits and are not affected by increase in prices of products due to shipping costs. Finally, the middle-class and the rich also form a bigger segment of target market of the e-commerce industry because of their ability to cater to the extra charges associated with online purchases. The rich can easily afford and are willing to pay for shipping costs which might be a challenge to low earners.

 

Industry Analysis

One characteristic of the e-commerce industry is that it involves constant growth due to consolidation of the internet and the increase in confidence levels of users to execute online transactions that fuel continuous rising of the industry. Secondly, there is customization of experience in the industry due to catering to divergent needs of customers and fulfilling their needs, tastes and preferences. Personalization is aimed at adapting to the likes of every customer individually. Additionally, the industry is characterized by dynamic sales and prices owing to the seasonality of purchases. As such, supply is dependent on production costs, demand, time of the year and type of buyer thereby making sales and prices of goods to vary greatly. Finally, e-commerce is greatly affected by logistics and distribution as such as the main facilitators of the industry to meet clients’ demands. The main players in the industry include Amazon, eBay, Zappos, Home Depot, Flipkart, Alibaba, Shopify, and Rakuten. Currently, the industry yields $4.1 trillion in sales, consumers spend approximately $3.4 trillion in online transactions and is expected to increase to $3.9 trillion in 2021.

Company Analysis

Amazon

Amazon was founded in 1994 by an American entrepreneur Jeff Bezos with the focus on consumer products such as books among others. It is a transnational electronic commerce organization and the largest retailer in America with distinct five different businesses that the firm has acquired from the time it was established (Gahlot, Singhal & Kendre, 2019). The company started by selling books but has expanded to the sale of different varieties of consumer products such as database technology to videos. Amazon has also expanded operations to Europe and dominated the market where it uses different websites to attract a high number of clients. It is successful owing to its low competitive pricing of its services and ease and simplicity with which clients make purchases from anywhere globally. The company has several initiatives aimed at meeting varied needs of its clientele to increase profits and revenue (White, 2018). However, the company faces challenges regardless of its successes, and one of them is the periodic losses it incurs occasioned by inferior strategies, poor establishment, the seasonality of purchases and promotions of its products.

An example of the huge losses it incurs is the drop in turnover from $76 million for a period of 100 days ending June 2005 to $52 million within the same period the previous year. The fluctuations direct the attention of the company to implement long-term strategies such CRM to aid in its fulfillment of organizational goals (Haines, 2017). The company should also maintain the use of the internet to support its business strategy by documenting information pertinent to customers’ needs, tastes and preferences to inform on their buying behavior. Such a strategy is majorly beneficial to the delivery of clients’ needs with specific packages of assorted items and creates a collection of goods that can be accessed online (Pratt, 2016). Another suggestion is to provide a scrap off shipping fee. Although this increases customers’ demands, it is detrimental to its longevity because shipping fee can increase to millions of dollars and cut on its profits.

The strengths that facilitate the company’s success include the strong brand name which makes it a global e-commerce giant and creating it a strong position and a successful brand image in the industry; and customer oriented nature of its services that enables it to cater to the needs of a large number of clients daily at competitive low prices (McCarter & Winn, 2019). Furthermore, there is differentiation and innovation among the workforce that leads to generation of creative ideas and innovative additions making it realize differentiation from other players in the industry. Cost leadership is another strength which reduces costs of maintaining physical stores because it focuses on improving online services, activities and presence while its large merchandise selection enables it to have an extensive product mix which attracts online customers to prioritize making purchases from Amazon other than its competitors (Drummond, 2017). Other strengths include availability of large numbers of third-party sellers, the strategy of ”Go Global and Act Local, ” large numbers of acquisitions, being involved in three key businesses, high revenues it records, and superior logistics and distribution systems.

Amazon’s weaknesses include an easily imitable business model that increases competitions and introduction of new competitors in the market; losing margin in a few areas such as in India owing to its free shipping policy aimed at attracting customers but eating on the company’s profits and revenues (Daniels, 2017). Third, Amazon has product flops and failures such its launch of Fire Phones and Kindle fire; and tax avoidance controversy in the US that affect its brand image and name. Additionally, the company has limited physical location presence that hinders customers from purchasing goods that cannot be sold online, and finally, there have been reports as published by Vox that highlighted deplorable working conditions and inferior treatment to which employees are subjected.

Opportunities presented to Amazon include markets expanding in the developing countries that create avenues for business expansion; and opportunities to expand physical stores which can help improve its competition and engage better with other brands (Gahlot, Singhal & Kendre, 2019). There is also improvement of technological measures and organizational policies which can reduce counterfeit sales; backward integration that can help in the expansion of in-house brands to increase profits and differentiate offerings to the clientele; and more acquisitions it makes to expand its market share and shrink the level of competition. However, the threats it faces are few controversies which dents its brand image making customers to boycott its products, and government regulations that affect online business processes (Drummond, 2017). Additionally, increasing cases of cybercrime affect the company’s network security systems, aggressive competition with other major brands such as Walmart cuts on customer base and presents a gloomy business future, and ease of imitation of business model increases the number of new entrants.

 

eBay

eBay was founded in September 1995 by Pierre Omidyar who is still the company’s chairman. The company is an online person-to-person trading community through the World Wide Web platform through which sellers and buyers can connect giving sellers the opportunity to list items they offer for sale and buyers the opportunity to bid items that interest them. The company gives its users the opportunity to browse all the items they need to automatically (Yalcinkaya, Yalcinkaya, Pazourek, Mullerova, Stuchlik & Maryska, 2016). Pierre and co-founder, Jeff Skoll, hired Meg Whitman to sustain the company’s success in 1998 before it joined New York Stock Exchange to continue with positive growth. By the end of 2002, the company had employed 4,000 people to work in its stores globally. eBay has recorded constant growth; it operated the first trading platform in America and has expanded globally since 1999. By 2002, it had opened 10 websites across the United States, 11 in Europe, and 6 in Asia and the greater Middle East (Daniels, 2017). The expansion of its services enables buyers and sellers to trade products and services in different countries thereby resulting in long-term growth and development.

The main strengths include strong brand, cost-effectiveness based on economies of scales, region-specific operations and high effectiveness of service. The strong brand of eBay in the market helps to make it more popular in the industry hence easier to recognize by merchants and consumers (White, 2018). As such, the company can overcome strong competition against other e-commerce competitors in the market. Cost-effectiveness is based on economies of scales and helps to fulfill mission and corporate vision of the company, and helps it to gain prominence in the industry and expand areas of operation such as classifieds, online marketplace and ticket exchange services. Besides, cost-effectiveness of the company helps to enhance operation management of eBay through shaping of operations such as Kijiji and StubHub among others (Gahlot, Singhal & Kendre, 2019). Furthermore, region-specific operations make the company be more flexible and become more competitive to respond better to industry challenges. The strength is founded on the organizational structure of the company postulating geographical divisions that aim at grouping regional markets in a wider scope.

Additionally, the high effectiveness of trading websites of the company helps to attract clients and sellers, and this is partly due to organizational culture which nurtures result-oriented excellence. The management of the company seeks strategies which capitalize on the strengths to deliver on the set short-term and long-term objectives. Regardless, the weaknesses of eBay include limited emphasis on innovation, limited flexibility to market variations and imitable business model (Daniels, 2017). Although the company focuses on the delivery of excellent results to its customers, the organizational culture does not prioritize innovation which limits its growth and competitiveness in the e-commerce industry. The centralization of functional units is another weakness by discouraging flexibility of management to business-type and geographic changes in the globular market (Tanner, 2018). Finally, the ease of imitating the business model of eBay leads to an increase in external competition due to numerous new entrants.

eBay’s opportunities include the expansion of operations to more markets, improvement in the rate of innovation, improvement in customer service quality and diversification. The company is presented with an opportunity to expand its online operations to other markets beyond classifieds and ticket exchange revenues and expand beyond the United States and Europe where it focuses its operations (Haines, 2017). Expansion of operations would increase revenues and spread the risk among the e-commerce industries which suggests the need for it to capitalize on the increased rates of online purchases and technological development. eBay also has an opportunity to improve its innovation to realize better competitiveness by furthering product development (Yalcinkaya, Yalcinkaya, Pazourek, Mullerova, Stuchlik & Maryska, 2016). Additionally, improvement of customer service quality is another opportunity that it should exploit to realize better customer satisfaction and expectations of customers. Finally, there should be championed diversity within to improve business resilience and create new revenue streams apart from online retail.

Finally, eBay is faced with three main threats; strong competition, imitation and potential industry disruption through the inception of new technologies. The company faces strong competition from other major brands such as Amazon and new entrants that eat into its customer segments and inhibit its growth. Imitation also negates growth of the company because of ease of entry of other firms into the industry and simulation of eBay’s business model through application of available technological and website operations (Drummond, 2017). Additionally, potential disruption of the industry depends on technological trends and this can change business performance of the company thereby disrupt the set long-term goals and objectives.

 

Strategy Analysis

Amazon’s Strategy:

Based on some information provided on Amazon, we think that the best strategy that fits Amazon is using overall cost leadership as a traditional competitive advantage technique. The goal of this standardized strategic approach is to reduce the price or equate them to competitor’s prices , and by managing the relationship throughout the entire value chain, the operating costs will definitely be lowered. In order to maximize the operational efficiency, Amazon uses advanced networking and computing technologies which provides low costs. The firm also has the strategic objective of investing heavily in research and development (R&D) to maximize the efficiency of its IT. Moreover, the conventional strategic approach to cost leadership forces Amazon to reduce its pricing rates. The strategic target impacts the marketing mix of Amazon. The low prices are important in attracting customers. While competitive advantage is achieved through the overall cost leadership approach to help in the achievement of Amazon’s mission and vision statement.

Moreover since the overall cost strategy also requires competitive parity which means being “on par” with rivals with respect to low-cost or other strategic product characteristics, Amazon is a competitor to Wal-Mart, since they both offer low prices and a large range of items. For most people, Wal-Mart is around 10 miles away from them. And since the aim of Amazon is to make life easier for customers, they have introduced so  many ways that could help them like making delivery easier and faster, working with goods like the Amazon Echo as an entertainment assistant…etc. Moreover, if there are items that you’ll need to replenish with Amazon, Alexa Dash wheel will take care of that. The advantage that Amazon has is being on par with competitors like Wal-Mart by letting customers never leave their house, whether it’s for major or small stuff.

Surrounded by Amazon’s intense growth strategies, diversification is the least important. In applying this intensive strategy, growth focused on new business is the goal. Rather than expanding by diversification, Amazon, for instance, expanded by purchasing Audible, which is a distributor of audiobooks and related products. The company is partly using acquisition in this regard to enforce this aggressive growth plan.

 

 

 

 

eBay’s Strategy:

 

 

Comparison

 

Discussion

What is the weakness of your chosen companies compared to main competitors?

The main weakness of Amazon is that it uses a business model which is easy to imitate which increases competition while the weakness of eBay is the high fees it charges on its services that decreases the number of customers and potential customers thereby inhibiting growth and development and realization of long-term goals and objectives.

What further strategy should the companies take to develop weak points?

The strategy Amazon should use to develop its weak points is to offer products at competitively low prices because it is buyer-oriented. The company should also automate listings to enable more customized searches. eBay’s strategy should be to offer a return policy with longer periods and use keywords to enable clients to easily get products they need.

Look for issues that the companies have recently faced and list them in three points

The recent issue facing Amazon is weak alignment with the developments in the e-commerce industry which has increased the number of competitors cutting its dominance in the market.

eBay’s issue is outdated seller and buyer systems that limit transactions on its site.

The issue that both companies face is easy entry into the industry and high competition

To solve these problems, discuss what ideas or strategies the company needs using the terms and frames learned in class

The suggestion to solve Amazon’s problems is to get feedback and reviews to know challenges affecting clients and improve on its weak points. eBay, on the other hand, should use social media platforms to increase customer visits to the sites, and generate more bids on products.

Conclusion

The e-commerce industry is a dynamic one that requires players therein to acknowledge such dynamism and acquire the necessary skills to remain relevant in the market. As such, the secret to remaining relevant is to encourage research and development and learn more on technological changes and customers’ needs, tastes and preferences to align the company’s goals with the same. Although Amazon and eBay are currently dominating the market, the ease with which the business model can be copied presents a new set of challenges and competition from new entrants. The challenge is coupled by seasonality of purchases from the sites and shifting customers’ needs which make it challenging to set and fulfill long-term goals and development. However, technological development and the expansion of e-commerce marketplace provides an expansive opportunity for growth and development hence infinite opportunities that it can exploit to realize its goals. It is worth acknowledging the positive impacts of the e-commerce industry, and the specific roles that Amazon and eBay have played in reducing the world to a global village and expanding businesses beyond physical geographical boundaries.

 

 

 

 

 

References

Daniels, A. (2017). Drop shipping: complete guide to start your six-figure drop shipping business now! How to find profitable niches and make passive income with Shopify, Amazon Fba, Ebay, retail arbitrage. Create Space Independent Publishing Platform.

Drummond, J. (2017). How to make money online: Amazon, Ebay, Alibaba-step by step for beginners.

Drummond, J. (2017). Selling blue print: Creating passive income stream for beginners with Amazon, Ebay and Alibaba.

Gahlot, A., Singhal, R. K., & Kendre, R. (2019). A study on multi-variate financial statement analysis of Amazon and eBay. NOLEGEIN-Journal of Financial Planning and Management, 11-24.

Haines, A. (2017). Amazon and eBay profiting from VAT evaders. Int’l Tax Rev., 28, 12.

McCarter, M. W., & Winn, A. M. (2019). The rational irrationality of auction fever: Evidence from Amazon.com gift cards, consumer products on ebay, and the behavioral laboratory. Journal of Marketing Behavior, 4(1), 57-101.

Pratt, S. (2016). How to sell on Amazon and Ebay for beginners: A complete list of basics to start selling on Amazon And eBay and where to find products to sell on Ebay for beginners. Ebay for Beginners.

Tanner, M. (2018). Dropshipping: quickstart guide to start a dropshipping business, find profitable niches and make passive income Dropshipping on Shopify, Amazon FBA, Ebay.

White, J. (2018). How Amazon and eBay will comply with Australia’s GST changes. International Tax Review.

Yalcinkaya, F., Yalcinkaya, B., Pazourek, A., Mullerova, J., Stuchlik, M., & Maryska, J. (2016). Amazon Ebay hot sale reverse inverted windproof umbrella upside down umbrellas with c-shaped handle for women and men. International Journal of Polymer Science, 2016.