Evaluation of market entry strategy of Amazon.com
Introduction
Amazon.com is a Public Company formed ion the year 1994 by CEO and Chairman Jeff Bezos. It began as an online bookstore but later diversified its products to include computer software, DVDS, VHS, CDS, video games, toys, apparels, food and furniture among others. The Company has been a pioneer in the field of e-commerce and its success was marked last year through its high revenue collection; $ 14.84 billion.
Analysis of the market entry strategy for Amazon.com
Amazon.com is looking towards the introduction of online delivery of books, movies and music. But it has used a toe-in-the-water approach. Here are some of the reasons why the Company could have adopted such a standpoint
Lack of enthusiasm from investors
Although the Company has recorded increased sales, this has not translated into net income. During the year 2005, Amazon.com registered an increase in sales of about twenty six percent yet at the very same time; it recorded a drop in net income of about thirty six percent. In the year 2007, net sales reached an estimated one hundred and forty three billion dollars; however, this was not seen in increase of profits. Part of the reason for this trend could be that any increases in sales generation are only brought about by more spending on the part of the Company. Consequently, the differences recorded as profit margins will be diminished.
The above reason is also topped up by the fact that the Company has to be registered into a new stock index. Last year, the Company entered the S&P 500 index which means that only three stock analysts rate its stocks as a buy 10 and eight consider the stock a hold and a sell respectively. In that same year, the Company went below its target share price; it came down from forty five dollars to thirty six dollars.
Because of all the negativity surrounding new investments and higher spending, perhaps it is best for Amazon.com to take the introduction of new services slowly. If they had begun shipping of digital media via the internet through high gear, they would have had problems with their stock investors and profit margins. Therefore it is best that they use their current approach.
Levies and taxation for digital media downloads
Tax regulators and State legislators have started eyeing digital downloads as potential sources of revenue. Initially, this market had been ignored by state governments in the US because the market was rather small. But now, the industry has recorded entrance of new players.
Studios in Hollywood recently announced that they will enable the sale of whole movies through the internet via downloads. Besides this, internet companies have registered a whooping 1.1 billion dollar revenue in 2005 through the sale of internet downloads. States within the US have realised that there is a resource here that has not been tapped yet. In the year 2007, free music downloads alone, without the inclusion of video games, movies or books, recorded total sales revenue of over five hundred million dollars.
These are some of the reasons why States have decided to wake up. By the year 2007, around fifteen States in the US had started collecting revenue through internet downloads of digital media. States already doing this normally collect revenue on taxation day or during product delivery. These States have either passed new laws concerning taxation of downloads or they have simply decided to interpret previous laws to apply to the scenario.
Some of the States are that have given proposals regarding this issue include Rhode Island, New Jersey and Vermont. Other States that believe online shoppers should be treated the same way as physical ones include; West Virginia, Utah, South Dakota, New Mexico, Maine, Louisiana, Kentucky, Idaho, Hawaii, Colorado, Arizona and Alabama.
These new introductions have caused a lot of uproar from internet stakeholders. Some of them, have argued that taxation of digital downloads is anti-productive and deters fair competition. Legislators have retaliated by claiming that any type of shopping is the same-whether online or physical. Such legislators have found ways to obtain revenues from internet transactions even when their laws have not clearly defined the issue. For example in the States of Washington and Kentucky, tax agencies and legislators have interpreted their law differently. Their law defines software as any set of instructions that cause a computer to perform certain functions. Such Stages have claimed that this is the very same thing that music does when downloaded from the internet. In this regard, music should therefore be taxed.
Such flexible interpretations have been a cause for concern among members of the internet fraternity. This is because they now realise that any new product launched may be examined by legislators and made taxable thus undercutting their profit margins to a very large extent. The same scenario applies to Amazon.com. The Company could have been deterred from plunging into online shipping of digital media because it realises that there are some regulations which might hinder product success. This is why it is best to first analyse the scenario and then engage in the new business venture after understanding the business environment. (Including taxation laws and regulations)
Other product offerings
Amazon is still busy with other product offers. This implies that it may not have the time and resources to give full attention to the product. For example, The Company is busy coming up with a system that allows free movie downloads merged with DVD sales. The Company has employed the services of some freelance studios from Hollywood to provide them with material for this service. Some of the Studios that Amazon is collaborating with include;
• Image Entertainment
• Ardustry Entertainment
• First Look entertainment
The Company plans on offering this service in a variety of ways, as elaborated by their spokesperson Kristin Mariani. The Company may offer consumers the opportunity to watch a movie for free on the condition that they have already purchased a DVD and are simply waiting for delivery. Alternatively, the Company is also planning on offering free digital movies on condition that the consumer will exchange the credit earned for use in purchase of a DVD.
On top of this, Amazon is also working on introducing a new show to woo its audience. It will be a comedy and they have hired the services of Bill Maher.
All these activities are keeping Amazon very busy, it is a Company that has received acclamation for its innovative nature and therefore must be very busy with these issues. It is therefore very difficult for the Company to put all its efforts into the development of new services, more so at full capacity. Amazon views the delivery of digital media online as a sort of investment for the future. This is a fair assumption.
Existence of pressure to increase revenue from competitors
In the year 2006, internet Company regulators FASB and SEC reported that there is renewed pressure for internet Companies to recognise less conventional routes of generating revenue such as Barter exchange with partners. The regulators reported that some of the reasons for such behaviour could be that most companies require more financing after short periods of time and most of this financing must be external. In addition, internet companies realise that they need more sources of revenue since some of them offer stock options for their employees when required to give them compensation. This is also backed up by the fact that some companies have registered increased interests by individuals in stocks, they therefore nee to back this up with additional revenue.
The survey also found that most of these internet companies have levels of activity consequently causing burn out levels to increase too. This has promoted them to engage in highly aggressive revenue generation through barter exchanges by partners and other alliances. On the other hand, this latter fact could be the very reason that has caused aggressive revenue generation. Some internet companies that intend on forming greater alliances are motivated to use barter systems in their transactions.
Because of competitors are employing such unconventional means, perhaps it is best that Amazon.com first analyses the situation within its industry before jumping straight into a new marketing campaign.
Strategies that the Company can adopt for the launch of its new service; online shipping of digital media
Economic strategy
As the Company initially introduces the service, it could monitor a number of economic factors surrounding the service so that it can assess its success and develop ideas to improve it. Amazon.com can conduct a survey of how well a product is doing by looking at its distribution, production and consumption and then deducing whether this is economically viable. It could utilise economic data to assess the prices of the new venture-online shipping against the backdrop of how much consumers are paying for it.
Besides this, it is also possible for Amazon to analyse how the new product is doing in terms of other parameters. It could carry out a comparison between prices of online shipping and levels of employment or other factors such as; preferences, consumption, preferences, buying, selling and value of money. This will enable the Company to come up with a real picture as to the performance of the new product. This ought to be backed up by some changes. If the current rate of employment, consumption etc is high and this is also reflected on prices of the commodity then it can increase its level of its investment in that area. On the other hand, if the economic indicators of the commodity are very low, then it is best for the Company to keep its level of investment low.
Strategies in marketing
Marketing strategies are the most fundamental components when drawing up business plans. They normally incorporate the identification and maximisation of opportunities that serve the competitive market best. Amazon.com could engage in a series of marketing strategies in the future both during and after the launch of online shipping.
The Company could adopt a strategy that is strictly based on the issue of market dominance. Here, the Company could fall under any one of the following;
• follower
• leader
• challenger
Because online shipping is a relatively new product in the e-commerce market, the Company could ensure that it becomes a leader in the market. This will mean continuously coming up with new innovations in the service so that it can stay ahead of the competition. It could conduct a research of what is currently missing in the system and then act accordingly to fill that gap.
Under marketing, the Company could also incorporate the issue of growth strategies. Here, it could consider increasing the volume or value of product offerings. This can be achieved through the use of either horizontal or vertical integration or through intensification and diversification. With regard to the issue of online shipping of digital media, horizontal integration could be applied through online shipping of all products. Vertical integration as a strategy can mean that online shipping will be applied to new products in the market. Intensification could mean applying online shipping to all or almost all products currently offered by the Company. Most of the time, this could be see as a signature product offered by the Company.
Digital strategy
Perhaps this is the most crucial element that Amazon.com should consider when launching its new product because the most important aspect about Amazon is that it is an internet Company. For other types of Companies that may not consider digital strategies as part of their day to day operations, then this may take up a small part of their resources. But since the digital field is right under Amazon.coms ally, then serious changes should be made here.
First of all, the Company could identify what are consumers digital needs. It has already done this by realising that there is a need for online shipping. However, it can also create the need in other consumers to increase their market through marketing tools. Secondly, the Company can then develop a vision of how clients needs can be fulfilled. Amazon.com should examine all the necessary resources that will need to be incorporated into the provision of that service.
Amazon.com will have to make sure that they have the support of all the stakeholders in the Company. They can also ensure that they have adequate financial backing to meet this high demand for online shopping. It should make sure that it respects all patent rights and obligations placed upon it. This can be done by collaborating with studio operators in Hollywood, Publishing Companies and video game producers. It should focus on the most important of these groups; music studios. The Company should make sure that it works hand in hand with all the stakeholders involved in digital media. From Music producers, CEOs of Publishing Companies and other patent holders.
Closely linked to this strategy is the technology strategy. Technology strategy involves coming up with a plan that will denote how information technology will be incorporated in all the parts of the organisation. What this normally deals with is all the issues in the information technology department but documents detailing this strategy must be written in language that can be understood by other non-IT members of staff.
In the technology strategy, Amazon could highlight all the strengths and weaknesses in its operations of online shipping. Then it could include the factors that are determining what users are looking for in products or services. This can then be backed up by describing the opportunities available to the Company using Information Technology. Finally, the Company can then address the need for improvements based on threats that may be facing the Company after the launch of the new product.
Pricing and product strategies
Since the Company will be introducing a new product to the market, then it could take advantage of penetration pricing. This is a strategy where the Company first sells a new product in the market at a low price. After consumers have become aware of the product, then it could change this to a higher, more economically viable price. The reason for such an approach is that Amazon.com needs to create large market share for online shipping. After Customers have seen the benefit of the service, then they can increase their prices.
The approach can also be used together with product adoption pricing. Maybe consumers may feel that a sudden increase in price is unfounded. However, this is a factor that can be solved by adding some value to the product. Amazon.com could improve their online shipping by say increasing its speed and this could be adequate justification for the penetration pricing mentioned earlier. They can be able to increase their prices with the confidence that consumers will not be disgruntled.
Adequate communication with its market
Amazon.com already has a system in place that enables it to correspond to consumers. Normally, consumers send emails to the Company and there are usually respondents available to reply the emails. Answers to clients questions are normally found on their UGA pages. The Company normally takes note of suggestions and if one particular issue raises a lot of concerns from customers, then it is worth noting that that issue should be resolved. What the Company can do is that it could focus on online shipping as an issue of discussion between itself and the clientele. It could ask consumers about the reliability of its online shipping system then it could asses consumers responses to the issue. It could also top this up by making all the necessary changes to the system depending on what the customer wants.
Use of e-commerce
Amazon.com could take advantage of the internet to advertise the online shipping programme. It could do this through some of the non conventional methods that it has been using in the past. For example e-mail marketing. This is a good form of investigating the progress of the product through interaction with the client. The Company could also use the process of search engine marketing optimisation. This can be achieved through the use of search engines to determine whether or not the new product offering is heading in the right direction.
E-commerce will provide numerous advantages to Amazon.com. It will enable the Company to save a lot of financial resources in the recruitment of physical sales persons or be part of their sales force. On top of this, the Company will also be able to determine what are the underlying issues behind clients decisions since it can be bale to access information that nay not easily be obtained from other sources of advertising or marketing.
The Company can use e-commerce in the common way. It could display some of the services it offers including online shipping on other Companys websites and of course on their own website. This will go a long way in informing clients about this idea and will therefore increase their market share.
However, there is a limitation to this kind of marketing. Amazon.com has a very large client base that it has to reach. This means that it will need to reach one individual in the shortest time possible and then proceed to the next. However because of the numerous individuals that the web hosts every day, internet connectivity can prove to be quite slow for commercial internet Companies like Amazon. Therefore solely relying on email-marketing alone will not be sufficient as internet speeds are wanting. The Company should instead create a marketing mix that will incorporate all the earlier mentioned aspects.
Improving customer relationships
Amazon.com can make sure that all its consumers are satisfied through a four stage process. Fist of all, the Company can initiate consumers to the new service of online shipping. What is normally done here is that new customers are welcomed and informed about the new service of online shipping. At this stage, there may be some level of doubt from the consumer. This is then followed by the integration stage. Amazon.com will be managing the quality of online shipping and customers at this stage become less anxious. The third one is called the intelligence phase here Amazon engages in an exchange with the consumer concerning services they would like to see. Lastly, the Company is expected to create value through innovations suggested by the consumer.
Conclusion
Amazon.com has been a pioneer of online shopping in the past despite critism of its business models. It is now considering the launch of a new product; online shipping but has taken its time before fully plunging into the venture. It should incorporate various marketing, economic and digital marketing strategies upon launch of its product. Besides it should take care of the needs of all its stakeholders. This will go a long way in ensuring that the service becomes a success.
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