SWOT Case Study - Amazon

Amazon is a profitable organization. In 2005 profits for the three months to June dipped 32% to $52m (£29.9m) from $76m in the same period in 2004. Sales jumped 26% to $1.75bn. Until recent years Amazon was experiencing large losses, due to its huge initial set up costs. The recent dip is due to promotions that have offered reduced delivery costs to consumers. This SWOT analysis is about Amazon.

Strengths.

• Amazon is a profitable organization. In 2005 profits for the three months to June dipped 32% to $52m (£29.9m) from $76m in the same period in 2004. Sales jumped 26% to $1.75bn. Until recent years Amazon was experiencing large losses, due to its huge initial set up costs. The recent dip is due to promotions that have offered reduced delivery costs to consumers.
• Customer Relationship Management (CRM) and Information Technology (IT) support Amazon's business strategy. The company carefully records data on customer buyer behaviour. This enables them to offer to an individual specific items, or bundles of items, based upon preferences demonstrated through purchases or items visited.
• Amazon is a huge global brand. It is recognisable for two main reasons. It was one of the original dotcoms, and over the last decade it has developed a customer base of around 30 million people. It was an early exploiter of online technologies for e-commerce, which made it one of the first online retailers. It has built on nits early successes with books, and now has product categories that include electronics, toys and games, DIY and more.

Weaknesses.

• As Amazon adds new categories to its business, it risks damaging its brand. Amazon is the number one retailer for books. Toy-R-Us is the number one retailers for toys and games. Imagine if Toys-R-Us began to sell books. This would confuse its consumers and endanger its brands. In the same way, many of the new categories, for example automotive, may prove to be too confusing for customers.
• The company may at some point need to reconsider its strategy of offering free shipping to customers. It is a fair strategy since one could visit a more local retailer, and pay no costs. However, it is rumoured that shipping costs could be up to $500m, and such a high figure would undoubtedly erode profits.

Opportunities.

• The company is now increasingly cashing in on its credentials as an online retail pioneer by selling its expertise to major store groups. For example, British retailer Marks and Spencer announced a joint venture with Amazon to sell its products and service online. Other recent collaborations have been with Target, Toys-R-Us and the NBA. Amazon's new Luxembourg-based division aims to provide tailored services to retailers as a technology service provider in Europe.
• There are also opportunities for Amazon to build collaborations with the public sector. For example the company announced a deal with the British Library, London, in 2004. The benefit is that customers c an search for rare or antique books. The library's catalogue of published works is now on the Amazon website, meaning it has details of more than 2.5m books on the site.
• In 2004 Amazon moved into the Chinese market, by buying china's biggest online retailer, Joyo.com . The deal was reported to be worth around $75m (£40m). Joyo.com has many similarities to its new owner, in that it retails books, movies, toys, and music at discounted prices.

Threats

• All successful Internet businesses attract competition. Since Amazon sells the same or similar products as high street retailers and other online businesses, it may become more and more difficult to differentiate the brand from its competitors. Amazon does have it s brand. It also has a huge range of products. Otherwise, price competition could damage the business.
• International competitors may also intrude upon Amazon as it expands. Those domestic (US-based) rivals unable to compete with Amazon in the US, may entrench overseas and compete with them on foreign fronts. Joint ventures, strategic alliances and mergers could see Amazon losing its top position in some markets.
• The products that Amazon sells tend to be bought as gifts, especially at Christmas. This means that there is an element of seasonality to the business. However, by trading in overseas markets in different cultures such seasonality may not be enduring.

by Mkt Teachers