Analysis of the Amazon Case

1.  What do you think are Amazon’s competitive strengths vis-à-vis Borders?  What about Barnes and Noble.com?

Amazon leveraged its first mover advantage well.  Entering the online book selling market 2 years before Barnes and Noble and 3 years before Borders gave Amazon plenty of time to establish some sustainable competitive advantages.  First, Amazon focused on growth of their customer base.  These customers continue to shop with Amazon, whether due to loyalty or just habit.  Second, Amazon created a strong brand that was rank “number 48 worldwide in the 2000 list.”  This brand may be the most recognizable in e-commerce.  Through Amazon’s efforts, people associate their brand with customer satisfaction.

Distributors have teamed up with Amazon to create a unique supply management system.  This system requires many of Amazon’s suppliers to carry some of Amazon’s inventory and even ship product directly to consumers using Amazon packaging.  This model cuts costs for Amazon by reducing the amount of shipping and inventory.  This can be seen in Exhibit 12, which shows Amazon’s inventory turnover ratio averaging between ten and thirty-five a quarter between 1998 and 2001.  This shows that Amazon usually has inventory on its shelves for only 3 – 9 days.  From 1998to 2001, Borders averaged an inventory turnover between 1.5 and 2.5 (average of 35 – 60 shelf days per item).

Unlike Barnes and Noble and Borders, Amazon has done an excellent job at personalizing service towards their customers.  The Amazon information system includes transaction processing systems and customer relationship management systems that “recognize, remember, and learn from every interaction with the customer.”  This data is transformed into information that allows Amazon to customize the appearance of its website to meet the individual needs and wants of its customers.  Other benefits of these systems include: the ability to offer personalized bundling and targeted recommendations.  Both of these allow Amazon to add on sales through related products.

Amazon has also found a niche as a middleman on the web between retailers and customers.  Through their brand value and high internet traffic, Amazon is able add value for both of these parties.  Amazon zShops, Amazon Payments and Amazon Commerce Networks all offer convenience and security for consumers to shop on the web.  Amazon receives increased internet traffic and revenues from projects like these. 

In addition to middleman projects, alliances with Toys “R” Us and Drugstore.com have further diversified Amazon.  This more balanced portfolio of assets has allowed Amazon to cut back on the unsystematic risk involved in each of its business area, making it a more stable company for investors than Border and Barnes and Noble who rely on the market for books.