Strategic Analysis of Amazon's Business: SWOT and VRIO

This report provides a comprehensive strategic analysis of Amazon, the world's largest online retailer. It begins with an introduction highlighting the key issues facing Amazon, such as profitability challenges and the impact of free shipping. The report then delves into a detailed SWOT analysis, examining Amazon's strengths (cost-leadership, differentiation, IT leverage), weaknesses (free shipping, declining focus on core competencies), opportunities (secure online payments, own manufactured products), and threats (data privacy, aggressive pricing, competition). Following the SWOT analysis, the VRIO framework is applied to assess Amazon's resources and capabilities, determining its competitive advantages and disadvantages. The analysis identifies areas of competitive party, temporary advantage, and sustainable advantage. A financial analysis is also included, examining Amazon's revenue growth, gross profit, and stock price trends. The report concludes with recommendations, emphasizing the need for Amazon to address its declining stock price and potential internal management issues, and a list of cited references.

Running head: STRATEGIC MANAGEMENT
Strategic management
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction:....................................................................................................................................2
Issues:..............................................................................................................................................2
SWOT ANALYSIS:........................................................................................................................3
VRIO Analysis:...............................................................................................................................6
Financial Analysis:..........................................................................................................................8
Recommendation and Conclusion:................................................................................................10
Reference.......................................................................................................................................11

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Introduction:
The main of this report is to analyze the situation for understanding the key issues. In this
report strength and weakness is analyzed by performing SWOT and VIRO analysis. In this, the
case the Amazon is selected for performing the analysis. The selected company is the world’s
largest online retailer. The success of this company has encouraged others retailers that includes
physical, brick and mortar retailers to get in to the online presence (Peppard& Ward, 2016). The
online retailer Amazon is compared to the Wal-Mart for its large presence in different countries
and the aggressive strategy of pricing followed by them. However, the recent development and
steep competition requires amazon has to rethink its business model of operating at close to zero
margins. In addition to this, the company has not made sufficient profit as a result it is an
impediment to the growth of the company
Issues:
The most primary issue relating to the business strategy of Amazon are stated below:
 Amazon offers free shipping due to which the company is losing its profit margin in
products of small amounts.
 The suggestion and recommendation of the market researchers and analysts have play a
significant role in the decrease in profits.
 The product category range of amazon is very small.

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SWOT ANALYSIS:
In the part below the SWOT Analysis regarding the business strategy of amazon has been
discussed precisely.
The SWOT analysis refer to the STRENGTHS, WEAKNESSES, OPPORTUNITIES and
THREATS that a business is exposed to. Every aspects of SWOT analysis is discussed briefly.
Strengths:
 The amazon is the largest online retailer it focuses mainly on the three prolonged
strategies that are cost-leadership, differentiation and focus. By following the strategies
the company thrives its gains from the course of its action and help its shareholders
originates the values of the items from the company (Hill et al., 2014).

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 The company is ahead of its competitors as it is easy to scale up and use the e-Commerce
platform. The company is well ahead of its competitors because it mainly derives its
competitive advantages from the leveraging IT.
 The company has superior logistics and distributor systems helps. This is helpful for the
company to fulfil the need of the customer’s. It is one of the main reason for deriving
competitive advantage from the competitors.
 Well established Amazon partner program for affiliates.
Weaknesses:
 Free shipping being the part of amazon offers has risk of making losses and hence might
not able to optimize on costs because of its strategy.
 The company has expanded very rapidly as a result the focus on the core competencies of
the company of retailing books online has declined.As this can be a clever strategy from
the perceptive of risk diversification (Frynas&Mellahi, 2015).However, it can be said that
asamazon is moving away from its core competence it has to be conscious of preserving
its strategic advantage.
 The main weakness of amazon is its business model of zero margin. This model has
resulted in significant decline in the revenue of the company as the huge amount of
revenues that has not been translated into profits that the company could utilize.
 Amazon sales depends upon the product category that varies in between a small range.
 Several provider for same product can arise aprice battle.

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Opportunities:
 As amazon facilitates the payment in online basis in a secured and trusted environment.
This helps the business to to scale up by considering the concerns over online shopping
as for the customer’s security and privacy are the primary concern.In addition to this, it
also improves the margin of the company because it allows the company to take the
advantage of using its own payment gateways (Hubbard et al., 2014).
 Amazon hasa great facility to capitalize its own manufactured product and by selling
them rather than forwarding the sites of the third party product.
 As amazon increases its portfolios of diversified products than its competitors. This gives
the company a position of strength and helps it to earn higher revenues.
 As amazon opens more sites in the emerging markets all around the globe that would
certainly increase competition in the online retailing markets (Jenkins& Williamson,
2015).
Threats:
 As identity threats and hacking leads the consumers data exposed so it is a concerns for
amazon to maintain its privacy.
 As its follows aggressive pricing strategies the company faces lawsuit from competitors
in the retailing industryandpublishers. The company is focused in cost leaderships and
has significantly reduced profit this is upset the competitors (Percy 2016).
 Thecompany from the local retailers that are more agile and nimble when compared to its
strategy faces the significant competitions.

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VRIO Analysis:
The VRIO framework acts a tool that utilize internally by firms that analyzed their resources
and capabilities that determine their competitive advantage implications that are temporary
competitive advantages ,sustainable advantages, competitive disadvantages or competitive party
(Madsen& Walker, 2015). There are four components of measures that contributes to the
analysis are. Values, rare, imitability, exploitations.
 Values are generally defined as the resources or the capability valuable in enabling the
firm’s ability to leverage opportunity that can be defend against threats.
 Rare shows that how easily acquired and readily available is the resources and
capabilities to the industry and other firms.
 Imitability refers to the substitution that could be easily replaceable for the resources or
capability.
 Exploitation refers as firms that are properly utilize the resources or the capability to its
most ideal state or maximize its potential or optimizes its potential.
Competitive disadvantages:
The Amazons does not fails in its business as shown by VRIO shows. Most of their
resources and different goods and products that were launched fetched them with profits and
successes. Few items failed for amazon was Fire Smartphone. However, amazons generally
astonished its customers with its innovations and creativity. As the failure will be labeled as

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competitive disadvantages for the business due to waste of money, efforts to produce an effective
items that could not be valuable, rare or imitable.
Competitive party:
The Competitive party defines as the items that are valuable but are not rare and can be
easily substituted with other goods. Amazon underestimate these items but these items itself
generates revenues streams. No revenue is not acceptable compared to without revenues as in the
long term it is not justifiable (Shin et al., 2014). As many retailers uses common features that
amazon uses like Amazon Supply. The Amazon’s New York better than no revenues, even to the
long term it is maintainable, video on demand, Brilliance Audio, European Warehouse etc.
though these features are initiated by other competitors but if amazon were to suddenly loose
these competencies then in term of short term, the business would have suffered significantly.
Temporary advantage:
The early acceptance and achievements of the retailers has been the crucial strength for
Amazon. Moreover, into the Amazon’s present business model, this would quickly be
incorporated. These possessions and competencies can be regarded as advantages of temporary
nature as it continues to flourish as mainstream. It is only a matter of time previously follows
suit. Partnerships with the giants industry like Sotheyby’s grow their business through amazon
that definitely has competitive advantage over its market benefits. Items such as instant video, x-
ray for the purpose of movies, its various acquirements of small retailers integrates with the large
retailers through amazon, and it has advantages over it.

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Sustainable advantage:
It is their innovation and those items that lead industry from where the most competitive
advantages of Amazon Inc. comes from.
Financial Analysis:
Amazon Inc. is one of the leading online retailers in the US market. Since the last 10
years it can be observed from the past statistics and financial performances that the company has
grown immensely (Parnell, 2013). The company has not only diversified its marketing strategies
but also expanded its customer base through introduction of a huge variety of range of various
categories of product.
From the statement of financial analysis it can be observed that the total revenue have
increased over the year. In 2006, the total revenue was $10,711 Million that increased to
$107,006 Million in 2015. This also resulted in the significant increasing gross profits during the
period. Gross profit for the year 2015 stands at $35,355 Million. Moreover it was also observed
that the total equity have also increased over the years for the company.

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Referring to the stock price chart of Amazon Inc. it can be observed that since its
inception, the stock price of the company has increased significantly over the year till 2015. But
unfortunately in the year 2016 there is a clear sign of declination in the price of stocks. This is a
crucial factor to be considered while assessing the financial health of the company and must be
rectified immediately.

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Recommendation and Conclusion:
From the above case study of Amazon Inc., it can be concluded that it is one of the
leading online retailer not only in the US market but also internationally. The major strengths of
Amazon being its three pronged strategic thrust. Moreover, through its huge range of product
categories and consumer friendly policies it was able to attract a large pool of customers and
grew up quite significantly over the year. From the financial statement it was observed that until
2015 the company was able to make substantial profit and it share price were also on a
increasing trend. However, since the year 2016 there seems to be some serious issue in the
internal management of the company that had a bad impact over its share price. Since 2016, the
stock price of Amazon tends to decline which is needed to be investigated and corrective actions
are required to be taken with immediate effect.

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Reference
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USA.
Hill, C. W., Jones, G. R., &Schilling, M. A. (2014). Strategic management: theory: an integrated
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Jenkins, W., & Williamson, D. (2015). Strategic management and business analysis. Routledge.
Kaynak, E., Mockler, R., &Dologite, D. G. (2014). Multinational strategic management: an
integrative entrepreneurial context-specific process. Routledge.
Madsen, T. L., & Walker, G. (2015). Modern competitive strategy. McGraw Hill.
Parnell, J. A. (2013). Strategic management. Sage.
Peppard, J., & Ward, J. (2016). The strategic management of information systems: Building a
digital strategy. John Wiley & Sons.
Percy, L. (2016). Strategic advertising management. Oxford University Press.
Shin, J., Jo, M., Lee, J., & Lee, D. (2014). Strategic management of cloud computing services:
Focusing on consumer adoption behavior. IEEE transactions on engineering management, 61(3),
419-427.