Case Study Analysis of Amazon's Business Model and Financial Stability

This case study analysis focuses on Amazon's business model, financial stability, and challenges. It provides an overview of the organization, its business model, and the four pillars of its strategy. The analysis also includes a financial analysis, challenges faced by the organization, recommendations, and an action plan.

Running head: CASE STUDY ANALYSIS
Case Study Analysis
Name of the Student
Name of the University
Author Note

1CASE STUDY ANALYSIS
Introduction:
The business conduction of the organizations of current generation are getting
complex with each passing day. The increment in the complexity is generated due to the
immense market competition that is available in the modern business market. The
organizations are significantly trying each and every measure to cope up with the market
competition and in order to do the modern day organizations are observed to conduct various
experimental restructuring in their business conduction. The main motive behind this
restructuring is to gain a breathing space in the intensely competitive market. But with the
implementation of these experimental measures, the organizations are also subjected to
significant vulnerability as the experiments may not result in the desired fashion at times. The
paper is focused in one such case where it will analyse the business model of Amazon. The
paper will analyse the current situation of the organization, will state strategy of the
concerned organization along with the identification of the major issues in the organization.
The paper will also analyse the financial stability of the organization along with the
marketing and managerial competencies that the concerned organization had inherited till
date.
Organizational Overview:
Amazon Inc. is a global market leader in the E-commerce online shopping industry.
The organization was established in the year 1994 by Jeff Bezos. Washington, US is the
current headquarter of the organization. The organization serves the customers across the
globe with the various products like Amazon Video, Amazon Appstore, Amazon Kindle,
Comixology, Amazon Prime along with Amazon Echo. The organization is experiencing the
excellence of their Chairman, President and CEO, Jeff Bezos and the CTO of the
organization Werner Vogel and that was visible with the generation of 117.86 billion US

2CASE STUDY ANALYSIS
dollar as revenue in the financial year 2017. Apart from that the generation of 4.106 billion
US dollar as the operating income and the generation of 3.033 billion US dollar as the net
income were significant in expressing the capability and skills of their 566000 number of
employees.
Contextual Briefing:
Jeff Bezos was capable of catching the trend with the introduction of the online
bookstore in the form Amazon.com in the year 1995 as Bezos was able to understand that the
introduction of the internet was gaining significant market limelight. The market for such
business operation started to increase and the organization started to take register the orders
for book publishers. In the year 1996, the sales of Amazon dropped significantly and it
suffered a net loss of 15.7 million US dollar. With this sudden setback the organization
introduced Amazon Associates program where they allowed the small websites to sell books
through a link to Amazon along with the introduction of the compensation policy. This was a
significantly profitable strategy from the part of the organization as it resulted in sales of
147.8 million US dollar in the year 1997 with the construction of the own warehouse’s of the
organization. The strategy was so successful at that time that it resulted in an increment of
838 percent from the previous years.
Bezos was able to understand that his desired growth rate will not achieved by the
kind of business model, the organization was having at that time. Hence Bezos introduced
diversification into the business where he concentrated on each and every consumer products
that could be shipped. This observed a change in the proposed business model from “sell all,
carry few” to “sell all, carry more” in the year 1998. In the following year Bezos introduced a
new strategy which was “Zshops”. The retailers and the third party sellers had the chance to
sell their products on the Amazon’s sites with a mere registration against a fees of 10 US

3CASE STUDY ANALYSIS
dollar and transaction cost of 1 to 5 percent of the value of the total sales. This registered a
sales record of a value that is more than 1.6 billion US dollars. In the year 2000, the
organization faced a significant drop in their stock prices. Earlier that year the organization
decided to offer technology services through the E-commerce platform in the name of
Amazon Enterprise Solutions and they even entered into partnerships with the companies like
the Target Corporation and Border Inc. The sudden dip in the stock prices was criticised
heavily and many of the business analysts clarified that the organization’s participation in
various product categories is the main reason behind such a disaster which resulted in a net
loss of 1.4 billion US dollar and forced the organization towards the verge of bankruptcy
Bezos took some necessary cost cutting steps closure of two warehouses, shutting down of
the customer care service at Seattle along with job cuts of 1300 number of workers. Bezos
knew that this was not enough, hence the organization tried selling products through other
companies’ warehouses. The company stopped selling non-profitable products and the above
mentioned strategy was profitable for the organization as it resulted in a generation of net
profit of 5.1 million US dollar in the fourth quarter of the financial year 2002.
In the year 2014, the organization observed a rise in their net sales which increased 20
percent and was 88.99 billion US dollar compared to its 74.45 billion US dollar recorded in
the financial year 2013.
Business Model:
The organization was significantly successful as the main aim of it was to align their
business model with the demands of the customers. Jeff Bezos and company never let go a
single opportunity to restructure their business model in order to serve new customers or in
order to serve the old customers following a new and effective way. Several Business market
analysts claimed that Amazon’s business model was unique and innovative as it was able to

4CASE STUDY ANALYSIS
align the online retail expertise with the capability of understanding the customer’s
requirements. Jeff Bezos was significantly concentrating on evaluations and experiments with
the business model of Amazon through the development in the E-commerce innovation.
Along with this the organization was successful as it was able to achieve the desired growth
in the new markets. The organization’s business model was dependent on four pillars low
prices, wide selection, convenience and customer service. Along with these, the organization
was observed to conduct fast and reliable delivery of the products which was significant for
the organization in achieving preferences of the customers.
Low Prices:
Amazon’s business model was significantly focused in offering products against
considerably low prices. The organization has the objective to produce the opportunity to the
customers so that they be able to get the best deals. The organization was observed to sell
goods at least 13 percent lesser than the prices of other stores and the organization was able
to do so with the improvement in the operating efficiencies of the organization, reduction in
the fixed costs and by providing the chance to the third party sellers to sell their products
thorough the Amazon website. As the organization was significantly focused in reducing the
overhead cost of maintaining the physical stores, the organization was able to derive a
notable advantage in the form of the sales tax. However, the tag of the organization as a low
price store was considerably questioned by the market analysts as it was visible from the
strategy of the organization that the company labelled very low prices to the products which
are best-selling and it was labelling significantly higher rates from the other organizations for
the products which were less popular in terms of consumption.
Wide Selection:
The organization had the ability to offer the biggest selection of the products to its
customers. In the year 2015, the organization was able to offer 20 different product categories

5CASE STUDY ANALYSIS
which included Computers, music, video games, electronic items, tools, toys for the kids and
baby section, grocery, health and beauty products, jewellery, clothes, shoes, automotive and
industrial equipment along with sports products. The organization purchased these products
in huge quantity directly from the manufacturers, distributors and the publishers and this was
significant for the organization in getting those products in a significantly less price.
Jeff Bezos was extremely efficient in implementing a three-fold strategy for the
increment of the product chain. The organization was able to introduce a team for each
category dedicated for the increment of the product chain and they will be liable to monitor
the purchases, vendor management and the customer preferences. In cases of the seller
businesses with the involvement of the third party, the organization introduced the concept of
category managers.
Convenience:
One of the major part of the Amazon’s strategy was the flexibility that the
organization offers to its customers. The process of ordering in the business operation of the
mentioned organization is significantly hassle-free and as the organization uses the presence
of the technology in the form of the website, they offer significantly less amount of difficulty
to their customers in placing the orders. The website enables the customers to view different
products of a particular category with different sizes and properties and the website is
significantly user friendly in order to receive considerable number of orders for the products.
The website has a major role in providing a tool to the customers for the searching purpose of
the books, videos, music or the other products. The operation of the searching tool was
significantly based on the typed keywords of the customers.

6CASE STUDY ANALYSIS
Customer Service:
The organization implemented a work culture that was significantly targeting the tree
major aspects like the customer service, loyalty and the customer retention. The organization
was significantly able to offer the customers with a better functionality, fast and dependable
fulfilment and customer service. The organization believed that the formation of the customer
loyalty will enable them to experience repetitive purchases from the customers and along
with that the organization significantly felt the need to engage their customers with the
organization. The organization’s customer review mechanisms was significantly helpful for
the organization in creating a special bond with the customers as the mechanism is able to
engage the customers in making the decision through their recommendations regarding the
product and its development.
Financial Analysis:
The organization’s financial statistics show that the organization is able to increase
the net product sales which increased to 70080 million US dollar in the calendar year 2014
from 60903 million US dollar of 2013. Along with the net product sales, the net service sales
was observed to increase as well as the organization was able to achieve 18908 million US
dollar compared to 2013’s 13549 million US dollar. Similarly the net sales of the
organization also increased as the organization was able to record 88988 million US dollar
compared to 2013’s 74452 million US dollar. The organization was able to achieve an
increment in the gross profit as well as it recorded 26236 million US dollar from 2013’s
20271 million US dollar. However the organization observed a sudden dip in the income
from operations which recorded 178 million US dollar compared to 2013’s 745 million US
dollar. Along with this the organization experienced a significant loss in the calendar year
2014 of 241 million US dollar in spite of a net income of 274 million US dollar in the
previous year. Though the organization had a reasonably strong financial base but yet the

7CASE STUDY ANALYSIS
organization was feeling the need of eliminating the existing challenges in order to strengthen
their financial structure.
Challenges:
The organization faced the loss majorly due to the business challenges coming from
the market competitors of that industry. The organization was facing significant issue in
maintaining the low price promise as that was harming the organization’s financial stability
and along with that the competitors like Wal-Mart, Google Shopping or Alibaba.com was
pricing their products in almost similar rates compared to Amazon. Along with this the
competitor organizations was providing free shipping and instant pickups whereas the
financial condition of Amazon forced them to increase the subscription rate of Amazon Prime
by 20 US dollar in the year 2014. This happened because of the increment in the shipping
rates of the Amazon Shipping carriers like the US Postal Service or FedEx. Along with these
reasons, the Bipartisan Fairness Act by the US senate in the year 2015 blocked the scope of
avoiding the tax in the states where the organization did not have any physical presence like
warehouse. Apart from these, the organization was suffering from lack of investment in the
fulfilment centres and was not able to update the products like Kindle Fire Tablet. In addition
to this, the acquisitions like Kiva or Twitch was not financially suitable for the organization
at that time.
Recommendations:
The recommendations for the organization will be to search for innovative ideas and
experimentation in order to increase the number of products in the digital and service
categories. Apart from that, the organization must implement the plan of constructing more
fulfilment centres, power AWS along with expansion of the Kindle Fire Ecosystem. The
organization is advised to invest more on the research and development of the products as it

8CASE STUDY ANALYSIS
has created a name for itself already. The increment in the product chain with the new
products generated according to the customer preferences or trends will be significantly
suitable for the organization to get rid of the situation. Having said that, it needs to be decided
by the organization whether increasing the product chain will be good or the organization
wants to keep a single product as their main focus. Along with this, the organization needs to
make sure that the acquisitions or the takeovers that it conducts must be financially viable for
them and they need to make sure that it aligns perfectly with the logistics and supply chain of
the mentioned organization. The hybrid cloud management model will be something that the
organization needs to consider with strong emphasis.
Action Plan:
Objectives Time Resources Outcome
Construction of
fulfilment Centre
12 weeks Construction
Department
Increment of the
generated revenue.
Increment in the
business of the
digital goods
24 weeks Sales Department Increment in the
generated revenue
from the digital
goods and service
category section.
Research and
development
activities
18 weeks Research and
Development
Department
Increment in the
product chain of the
organization
Research on hybrid
cloud management
model
6 weeks IT Department and
Research and
Development
Improved
Efficiency,
flexibility, compact

9CASE STUDY ANALYSIS
Department security

10CASE STUDY ANALYSIS
Bibliography:
amazon.in (2018). Online Shopping site in India: Shop Online for Mobiles, Books, Watches,
Shoes and More - Amazon.in. (2018). Retrieved from http://www.amazon.in/
sec.gov (2018). AMZN-2013.12.31-10K. (2018). Retrieved from
https://www.sec.gov/Archives/edgar/data/1018724/000101872414000006/amzn-
20131231x10k.htm
sec.gov (2018). AMZN-2014.12.31-10K. (2018). Retrieved from
https://www.sec.gov/Archives/edgar/data/1018724/000101872415000006/amzn-
20141231x10k.htm