E Commerce Strategy That Amazon Utilizes

Amazon is the world's largest e-tailer, and a technological leader in the field. This paper will outline the ways in which Amazon has built out its technological leadership, and how its different technology strategies help to support its overall business strategy. Ultimately, Amazon excels on the basis of the strong customer focus in its use of IT, as it recognizes that meeting customer needs is a critical component to growing its business in the long run.

Overview of the Company

Amazon was founded in July 1994 and came online in 1995. The company sold books initially, and its first book was sold in July 1995. This made the company an early adopter in terms of online retailing, and it soon began to leverage that position by plowing back the early revenues into technological innovation. The company responded to the reality of an increasingly competitive market with innovations such as the associates program (1996), one-click shopping (1997), new products (1998), and finally greater product line and international expansion (by 2002) (Amazon.com, 2015).

Today, Amazon is the world's largest online retailer in the world, with six times the sales of the next-largest e-tailer (Statista, 2015). Amazon's current revenues are $88.98 billion, but a hyper-competitive environment has resulted in the company taking net losses in two of the past three years (MSN Moneycentral, 2015). Part of this success is the first-mover advantage that Amazon had as the first major e-tailer in the world, but in part this success is because the company has long maintained a competitive advantage over other e-tailers in terms of its technology. Amazon was an innovator in particular with CRM software on its website, and through this has been able to increase the average ticket for its customers through reviews and recommendations, remember items that the customer has browsed, store items long-term in shopping carts, and other techniques that spur more frequently shopping, more browsing and more purchases that customers might otherwise have made. The underlying basis for this innovation is not technological at all -- it is re-establishing the relationship between customer and retailer to where the retailer remembers the customer and can help them shop -- but Amazon has used technology to rebuild this relationship for the 21st century, and that has been critical to the long-run success of the company (Matthews, 2012).

Customers

Amazon is the world's largest e-tailer, and targets a very broad customer base. The company competes on the basis of differentiation, so is not explicitly targeting customers who seek the lowest prices. Instead, Amazon targets customers seeking selection and convenience, and in that the company seeks out the middle-class and richer consumer who is willing to pay a premium for convenience. The company has a number of international subsidiaries so its target customer is fairly broad in geographic scope. To reach this target market, Amazon offers a very broad range of merchandise, a strategy is started to implement by the end of the 1990s, succeeding where other inchoate e-tailers were failing to adequately meet customer needs.

To meet the needs of the mass market, Amazon seeks to identify specific shopping needs and meet them, and as a result of this Amazon has created a shopping experience substantially differentiated from bricks and mortar retail. The company's relationship with the customer is central to this experience. Amazon become a leader at what has been termed e-CRM, or customer relationship management. It has been demonstrated that CRM techniques typically increase customer loyalty (Kelley, Gilbert & Mannicom, 2003), which Amazon rightly recognized was one of the keys to growing its business in a competitive environment where moving from one shop to another is as easy as a mouse click. Amazon knew that it needed to be the first landing place for any web-surfer looking to shop, and built its CRM technology around that principle. Amazon first utilized cookies to remember each customer, and ensured that customers had incentive to sign up, allowing Amazon to gather more data about its customers. That data was then pooled and used to offer up recommendations based on past purchasing history, and the histories of customers with similar tastes. Ultimately for Amazon, CRM was as much about leveraging its data as it was about remember who each customer was. But from the customer's perspective, it was refreshing to work with a company that would remember their tastes and preferences, and be able to easily go back and find something previously browsed. The shopping experience became better and easier than could be offered at a bricks and mortar store, and that allowed Amazon to be a more convenient option. It delivered both convenience and service, and was therefore able to charge higher prices, or at the very least reduce customer price sensitivity, in order to accommodate for that.

This high level of customer loyalty also serves as a barrier to entry. Other e-tailers can match much of Amazon's software at this point, but prying customers away from Amazon would require a competitor to leapfrog Amazon, not merely match the CRM and convenience that Amazon has been able to cultivate for its customers.

Strategies

The Internet is obviously a key element in Amazon's strategy, since the company does not sell anywhere else. While it has some physical infrastructure, in particular its warehouses, the company's entire retail operation in online. This has actually helped Amazon in that unlike many of its competitors it has focused all of its resources entirely on the development of its online business. Amazon was a first mover in e-tailing, and because of that and its exclusive focus was able to build a large customer base early. By the time many of its major competitors entered the e-tailing business, Amazon was already well-established as the industry leader. Because competitors have had difficulty delivering a superior offering than Amazon, the company has been able to maintain and even build on that leadership.

At the core of Amazon's information systems strategy is the idea that serving the customer should be the ultimate objective. This makes sense in that the company competes on a differentiated strategy, and the way it uses technology to enhance the customer service experience is one of the most important ways that an e-tailer can set itself apart from bricks-and-mortar competitors. CEO Jeff Bezos realized that while an e-tailer gathers a tremendous amount of data, the best way to use that data in the marketplace is in service of the customer (Baldacci, 2013).

The information and communication technology strategy is designed to ensure that service is rapid. One of the areas where online retailers cannot match up to bricks-and-mortar retailers is how fast the customer gets the product. Amazon uses technology to move information around quickly, in order to lower the amount of time it takes to get goods into the hands of customers. Sales are communicated instantly to the fulfillment centers. The fulfillment centers are partially-automated -- the company has over 15,000 robots working in these centers. Technologies such as RFID, vision systems, automated materials handling technology all contribute to high levels of efficiency. Thus, Amazon can unload and store a trailer in less than 30 minutes, and begin moving goods out to customers as soon as they are shelved and an order is received. The company consistently reduces the amount of time that retrieval, packing and shipping takes from order, allowing for more rapid fulfillment, so as to bridge the time gap between purchase and receipt of goods (Bishop, 2014). It is not simply that information moves quickly within the Amazon system, it is that it moves in service of the primary customer needs, and Amazon is aiming to get to a point where it is nearly fully automated in order to reduce errors, increase efficiency and deliver a higher standard of service.

Knowledge management is another important type of strategy that Amazon has. The company is as powerful and efficient as it is in part because of its use of big data. Amazon has long gathered information about customers from their searches and purchases and used that information to increase the number of purchases that they make. But the company now has the ability to use its data to make pricing decisions, to make merchandising decisions and make decisions about promotions. Amazon is therefore able to know more about how to sell to people than its competitors, not just for its refined data analytics techniques but for the preponderance of data that it possesses. Being the largest e-tailer gives Amazon tremendous advantage in the amount of data with which it has to work (Chen, Chiang and Storey, 2012).

Online User Types

Amazon's data allows it to understand what its different online user types are, and what the respective shopping patterns are for those types of users. As with most retailers, Amazon derives a substantial amount of its business from frequent shoppers, those who frequent the site and who buy a large amount of their goods via Amazon. The company markets aggressively to this group, but also provides numerous incentives such as Prime to attract people into this group. The company sees its core high-volume customer as the objective for all other customer groups. Converting the casual shopper who may still do most shopping offline to a high-volume customer is one of the ultimate goals of Amazon's customer service strategies.

Lower volume customers consist of those who only shop a little bit online but primarily do their online shopping with Amazon, and those who shop at a number of different e-tailers. These customer groups have different needs from the perspective of Amazon. The former still shops offline most often. Amazon already has their loyalty for online, but needs to convince these customers to do more shopping online. The second group is an active online shopper, but lacks the brand loyalty to Amazon. There is opportunity for growth from both of these groups, but their respective needs and the strategies that can be used to increase sales from them will be different.

Technological Advantage

Amazon is the largest e-retailer in the world because it has been able to capitalize on its first mover advantage from twenty years ago to continually reinvest in improving its technological offering. In that way, Amazon has been able to maintain technological competitive advantage over the competition. Amazon's leadership has allowed it to foster a culture that is oriented towards innovation, which combined with a strong customer service orientation means that Amazon is willing to continually make advances. Indeed, when third party companies innovate, they are likely to do so targeting Amazon as the ideal customer, given Amazon's size and influence over the industry.

So e-business is Amazon's only business. This has allowed it in past to plow all of its research and development dollars into e-business technology. Many other competitors -- especially companies like Walmart -- have a lot of money but have other offline interests. They cannot dedicate themselves as strictly to the development of e-commerce technology. Being able to focus exclusively on such technology has allowed Amazon to maintain its technological leadership. In turn, this leadership allows it to maintain market leadership and that market leadership allows it to have more money to plug back into maintaining technological leadership, creating a powerful positive feedback loop that serves as a barrier to other companies being able to truly compete with Amazon's broad product depth and its service offering.

Security

There is little doubt that Amazon's size makes it a security target, but it has the most money, and the highest level of technological leadership, and these factors allow Amazon to have the most sophisticated security systems. Amazon has long emphasized security, in particular as features like one-click purchasing mean that Amazon has a wealth of customer information on file that could be a security target. However, Amazon is less vulnerable to security risks because it has technological advantage and can afford the latest security methods and systems, contrary to smaller e-tailers.

Regulation

Regulation can affect e-business companies. Amazon, as the market leader, is at once the most affected by regulation but also in the best position to influence that regulation. Where there is regulation, it typically serves to protect the consumer, enhancing consumer rights and options for recourse. Amazon has the ability to influence legislation, given its size and its established leadership position. An example is when Amazon told the Federal Aviation Administration (FAA) to get its regulations up to speed because it was going to be sending out delivery drones -- Amazon has the power to influence the pace and nature of federal regulation (Soper, 2015).