Amazon’s generic competitive strategy, based on Michael Porter’s model, shows the approach that the organization uses to develop its business amid tough competition in the e-commerce market. As one of the largest online technology companies in the world, Amazon proves to be highly competitive against big-box retail firms, like Walmart, and other technology firms, such as Google (Alphabet), Apple, and Microsoft. Amazon’s intensive growth strategies are responsible for business growth and expansion. For instance, the company’s provision of its e-commerce services outside the United States shows business plans for international growth. Through the effective implementation of its generic competitive strategy and intensive growth strategies, Amazon succeeds in the global e-commerce market.
Amazon’s generic competitive strategy enables the e-commerce business to offer goods and services at affordable rates. The resulting competitive advantage boosts the company’s brand popularity. Thus, this generic strategy strengthens the brand, which is one of the competencies and business strengths noted in the SWOT analysis of Amazon. On the other hand, the intensive strategies support the e-commerce company’s ability to take advantage of growth opportunities around the world.
Amazon’s Generic Competitive Strategy (Porter’s Model)
Amazon uses cost leadership as its generic strategy for competitive advantage. Minimization of operational costs is the objective in this generic competitive strategy. For example, Amazon uses advanced computing and networking technologies for maximum operational efficiency, which translates to minimized costs. Considering the nature of e-commerce, the company benefits from process automation, which is used in purchase processing, scheduling, and other operational processes. These benefits enable Amazon to minimize the cost of its online retail and other services.
A strategic objective linked to Amazon’s cost leadership generic strategy is to build e-commerce competitive advantage through the continuous improvement of information technology infrastructure. The company also has the strategic objective of heavily investing in research and development (R&D) to optimize the performance of its IT resources. In addition, the cost leadership generic competitive strategy pushes the technology company to minimize its price levels. This strategic objective impacts Amazon’s marketing mix (4P), which involves low prices to attract buyers. Thus, through the generic strategy of cost leadership, competitive advantage is gained to support the fulfillment of Amazon’s mission statement and vision statement, especially regarding growth and leadership in the online retail and e-commerce services market.
Amazon’s Intensive Growth Strategies
Market Development. Amazon uses market development as its current primary intensive growth strategy. Entry and growth in new markets is the main objective in this intensive strategy. The e-commerce company enters new countries where it offers its services. For example, the company initially provided its online retail services to consumers in the United States. Amazon now operates e-commerce websites and services in more countries, including Canada, the United Kingdom, and India. Each new country is considered a new market that creates growth opportunities for the firm. Amazon’s generic strategy builds competitive advantage that allows the business to implement this intensive strategy of market development. A strategic objective related to this intensive growth strategy is to establish new online retail websites and operations that correspond to new countries added to Amazon’s global market reach.
Market Penetration. Market penetration is a secondary intensive growth strategy in Amazon’s e-commerce business. The objective of this intensive strategy is to generate more revenue from the markets where the company currently operates. Amazon grows with increasing consumerism. For example, as consumers develop increasing interest in online retail, the company benefits from higher sales revenues, especially when considering the popularity of the Amazon brand. Market penetration is responsible for the initial rapid growth of the e-commerce business in the United States. The company’s generic strategy creates the competitive advantage necessary to penetrate markets based on low costs and prices. A strategic objective based on this intensive growth strategy is to implement an aggressive marketing campaign to attract more consumers to Amazon’s e-commerce platform.
Product Development. Amazon applies product development as a supporting intensive strategy for business growth. Developing and offering new products to gain higher revenues is the goal of this intensive growth strategy. Amazon grows partly by developing new products over time. For example, the company now offers AmazonBasics products and Amazon Web Services (AWS). The company’s cost leadership generic competitive strategy supports this intensive strategy by providing the company with low-cost business processes for introducing new products. A strategic objective related to this intensive growth strategy is to increase research and development (R&D) investment for rapid product development and release to the market.
Diversification. Diversification is the least significant among Amazon’s intensive growth strategies. Growth based on new business is the objective in applying this intensive strategy. For example, Amazon grew through its acquisition of Audible, which produces audiobooks and related products, and its acquisition of Whole Foods Market, which offers health food and related groceries. In this regard, the company partly uses acquisition to implement this intensive growth strategy. Amazon’s cost leadership generic competitive strategy enables the organization to grow in diversification by minimizing operating costs and selling prices. A strategic objective associated with this intensive growth strategy is to grow the e-commerce business through an aggressive acquisition strategy.
References
- Amazon.com, Inc. – Form 10-K.
- Amazon.com, Inc. – What We Do.
- Amazon.com, Inc. – Who We Are.
- Liang, X., Luo, Y., Shao, X., & Shi, X. (2022). Managing complementors in innovation ecosystems: A typology for generic strategies. Industrial Management & Data Systems, 122(9), 2072-2090.
- López, D., & Oliver, M. (2023). Integrating innovation into business strategy: Perspectives from innovation managers. Sustainability, 15(8), 6503.
- U.S. Department of Commerce – International Trade Administration – Retail Trade Industry.
- U.S. Department of Commerce – International Trade Administration – Software and Information Technology Industry.