This post explores an Amazon Case Study as Amazon enters the B2B market.
Understanding the Challenges
Amazon is an American company based in Washington. Amazon offers online shopping services and cloud computing. It started as an online bookstore and now it is one of the most popular sites in the Internet industry. Amazon has competitors in so many different market segments, due to the variety of its services. Some of its competitors are eBay, HULU, Netflix, Best Buy, etc.
Amazon is very good at improving and managing its website. It has certainly developed a core competency in the advance online shopping development. Amazon also has core competencies in the advance logistics and operations system, they are able to synchronize shippings from all over the world. Amazon offers the largest selection of products with competitive pricing and delivery options that allow receiving a product as soon as in a few hours.
Currently, Amazon is trying to expand its market by offering more B2B services. Amazon has impressive capabilities of data store, inventory storage, CRM, software development, etc. Now Amazon is starting to use all these capabilities, and offer them to clients directly. Small companies and start-ups with not a lot of resources will definitely benefit from the services. With this new services Amazon is giving customers a very attractive value proposition: Already developed tech solutions ready to use at a fair price, with great customer service and support.
Even though, Amazon’s new strategy seems like a success already there are many challenges that the firm will have to face. Internally the firm is focused in its online shopping store; there are not a lot of professionals dedicated to the B2B sector. Amazon will need to increase its personnel, and probably get financial resources to expand its business. Also, even though some of the products are already developed, most of them may need to adapt to the business it’s requesting them. Adding all these new service will be challenging, Amazon may not have enough personnel, infrastructure, and resources to satisfy the new customer. Externally Amazon also faces some challenges, in all the market sectors Amazon is getting into there are several competitors with high expertise.
Recognizing the Problem
Amazon is a market leader in online shopping. They give customers an outstanding value proposition, and work towards continuous improvement and innovation. Amazon is now adopting a new strategy: B2B, without leaving single customer services.
As Amazon is now, it will have some issues that can prevent them to be successful in this new market. Amazon needs to figure out who is this new market, its characteristics, strategies for retention and advertising, etc.
Amazon has not done enough research about the new market it’s entering. Also, employees that are trained in the specific new services that Amazon is going to offer are limited. If they want to be successful they need to have a more solid team. The company also has to take in consideration the single customers that expect the same services; therefore it cannot reduce the resources from one section of the business to the other. Resources are limited; Amazon will potentially have to look for more funds.
From all the problems Amazon is facing, there is one root problem: Amazon does have the core competencies for the new market. This problem is challenging, the company has to develop new competencies, understand the new market, and adapt if they want to be successful. All the other problems are the result of the root problem, if Amazon is not able to get over the root problem, then it will face all the other problems at the same time. Amazon has many strong competencies that will help overcome the challenge.
Amazon can take many directions to overcome the root problem, but these 3 potential solutions are the ones I would like to introduce:
1- Develop a strategy to do extensive market research in a specific new service they want to implement (in the B2B area). Once they have the required knowledge they can start developing the competencies for that specific case. After some time, if the solution is successful they can include more of the services.
2- Plan to execute all the services they have thought about that adapt to a specific industry. Develop core competencies as they improve in the specific services and then continue adding more market sectors.
3- Forget about the B2B plans, and just offer related services upon specific companies’ requests.
Solution 1 will help amazon develop specific competencies and learn from the new market. Getting a better understanding of customers can be defining. The main weakness of the solution is that Amazon will only be working with one of the services. Some of those services are interrelated, and may make it much more difficult to enter the other markets over time. In the other hand, if they are unsuccessful, it can save them time and resources they were going to use for the whole project.
Solution 2 will simplify the market research part since Amazon will just focus in one market sector. They will have to spend some time determining the specific sector (tech startups, food companies, software companies, etc), but after that they can put all their effort in it. I think it is beneficial to offer all the related services at the time. It will definitely be a hard learning process, but once it’s mastered they can expand their target group to a broader audience.
Solution 3 discourages Amazon of the B2B business in general. Amazon is already performing some of those services right now. The benefit of this solution is that they will strengthen relationships with the few customers they are working with. The weaknesses are that they are wasting an opportunity they could be successful at.
Further Solution Analysis
After the analysis of the strengths and weaknesses of each solution, I determine that Solution 2 will be the most effective. Following Solution 2 will allow Amazon to learn about the business in each of the services they are providing, but at the same time have a limited number of customers. Amazon will have some time to get new competencies and understand the new processes.
Currently, Amazon does not have enough employees to manage the single customer online retailing business and the B2B business. With this solution they won’t need as many personnel or resources at the start. They will be able to use their core competencies as a basis and then develop new competencies specific to the B2B industry.
Amazon will have the opportunity to have more impact in communities, since it will offer many services that can be very useful to startups. Also local stores that need storage or software can also get both services from Amazon. Even though, Amazon will be making business it will facilitate peoples’ lives.
As I mentioned earlier, Amazon has competitors in so many different categories. I believe that the bigger threat will come from competitors that are already in the industry. These competitors have more develop competencies and experience.
Amazon should start implementing the solution by conducting research about the several target groups they can have. Amazon has to determine the more suitable taking into consideration: competition, technology requirements, financial requirements, etc. To narrow down the options, Amazon can just take into consideration all the companies it is already working within the B2B segment. From that group, Amazon can consider the profitability, resources needed, potential new customers, etc and determine the best target group to start working with. Tech startups are a good option, they need technology to operate, but they have limited resources. Local stores can also be a target group. They often compete against large corporations, they will be looking to cut costs and gain some competitive advantage over competitors.
While the research part is going on, Amazon can take the time to hire general personnel that will be necessary for customer service, operations, marketing. Once the decision is made they can look for personnel qualified in the specific field.
Then Amazon has to start implementing all the services with the specific target group. It may be a rough start. Amazon will have to start using their own core competencies they have had for years to fulfill customer requirements, as new requirements come up, they will have to adapt.
Amazon will have to use all the advantages they have to enter this new market. They need to use their image and values that have placed them as a market leader. Using the reliability customers have in them to attract new businesses. Internally they have a lot of personnel that are very qualified in specific services such as software developers, or logistics managers. Amazon can then start a mentorship program were qualified employees can help train the new employees.
Metrics and Contingency Plan
The optimal outcome, will be that Amazon can determine the new competencies required to be successful and develop them with time. With these competencies Amazon will be profitable in the B2B business. To measure the success Amazon could measure its return on assets (ROA). ROA is an indicator of how profitable is the company compared to its total assets. They can also measure their profitability with the profit Investment ratio.
If the solution taken does not solve the core problem, then Amazon could follow potential Solution 3. Continue with the online retailing business and only offer B2B services to specific customers.