Analyzing Amazon’s and eBay’s Strategies

free essayAttaining sustainable competitive advantage is the goal of every company. Therefore, organizational changes are crucial developmental processes in every corporation. Similar to globalization, technology plays a significant role in the developmental process of today’s companies. Nowadays, technological development, particularly caused by the World Wide Web and dot com, is a sure way to attain valuable information about topics and issues. For instance, customers obtain information and purchase products or services they need directly from the Internet without physically traveling to look for products from companies.

Amazon and eBay provide an important platform where customers can view and purchase a variety of items, such as books online that are then delivered to them. Such technique is one of the strategies that have made the companies successful as through the Internet they can provide timely services to customers. Strategies are effective solutions that respond to various external and internal threats and issues impacting an organization, directly or indirectly.

Companies Background

eBay was founded by Pierre Omidyar in 1995, which was a pioneer online auction company that united international, national, and local people together to create an open community through the Internet. With equal access to the company, people can access various services and products offered by eBay, such for sellers, buyers, hobbyists, and bargain hunters. For this, eBay has transformed the aspect of e-commerce by changing how people perform trading. The auction is known as pricing based on demand (Bunnell and Luecke, 2000). eBay takes part in such kind of online commerce pricing where buyers entirely determine transaction prices. The company has become the leading auction in the world and one of the few major online companies to gain high profits and expand e-commerce at the same time (Bunnell and Luecke, 2000). Currently, eBay is a brand with more than 39 market presence, which sold items of a total cost of 60 billion U.S. dollars on its trading platform.

Amazon.com Inc., a global company, which offers retail shopping services on the Internet. Jeffrey P. Bezos, an electrical engineering, and computer science student who graduated from Princeton University in July 1994, was the founder of the company. He placed the headquarters of the company in Seattle, Washington. His choice was caused by the fact that Seattle had a large group of technical specialists and was close to the biggest book wholesalers in Roseburg, Oregon. Additionally, placing the company in a big state, such as New York and California would increase sales tax that is charged depending on the state the company is incorporated into. Thus, prices of the services offered would increase due to high sales tax, and that would lead to a competitive disadvantage (Bunnell and Luecke, 2000). Therefore, he chose an uncompetitive state, Washington. Nowadays, Amazon offers a broad range of services and products and retailing them at a low cost making it a unique Internet retailer company. The management team of the company strives to maintain healthy and sustainable competitive advantages.

Current eBay Strategies

One strategy eBay used to compete with other firms is the use of a tailor made innovations that are designed to make auctioning an easy activity to the customers. For instance, eBay places itself as the facilitator between the seller and the buyer in an individualist manner. The model of online auction extended e-commerce by offering low cost chance to perform economic activity.

eBay has regenerated and experimented much during its existence to innovate the best services. It developed exclusive software that supports a robust and accessible user interface, which has a transaction processing system that handles all features of the auction process. Users of eBay can automatically look through listed products. Sellers list their items and buyers bid on topics of interest. Additionally, items are presented in themes and categories of auction type. E-mails are also sent to registered users on the fruitful and unsuccessful bids. Moreover, all the information is stored in a data warehouse.

Additionally, eBay has a clear mission to provide a person-to-person online auction platform and focuses on five strategic elements. The given strategies aim at expanding user base, strengthening eBay brand, broadening trading platform through the increase of product categories and promoting the new ones, fostering community affinity and enhancing site functionality and features. eBay realizes that the only way to win customers trust is by realigning and refreshing company’s purposes.

Besides, eBay also prioritizes brand building, as evidently seen in 1998, when Whitman became part of the enterprise. Brand building clarified the stand of eBay and marketed it as a personal trading company for the community. eBay built its brand through advertising in online alliances and national magazines. Additionally, it made a costly effort by entering a 3-year marketing deal with America online in August 1998 to gain recognition.

Lastly, the priority strategy was broadening services and products portfolio to reach approximately 3000 categories. eBay also utilized bulletin boards and chat rooms that have content specific to provide a current interface between sellers and buyers. Moreover, eBay developed a sense of community by designing an online platform that addressed personal and secure interactions between sellers and buyers. It also created chat rooms that are interest-based, making a transparent interface available to eBay customers.

eBay’s Figures and Changes

eBay increased its registered users from 40,000 to 62 million from 1996 to 2002 due to its global expansion and internal growth strategy. The listings have also changed since the company started (Gomes-Casseres, 2001). In 1996, the list of items on eBay was 300,000 and increased to 638 million globally by 2002. Additionally, the cost of the items traded through eBay has also risen to 15 billion U.S dollars from 7 million U.S dollars from 1996 to 2002.

To expand the business globally through increasing the number of its users, the business model of eBay was changed strategically. The trading platform used by the auctioneers was expanded to not only include items that are traded but also the items that can be bought. The feature is called the “buy it now” that allows buyers to purchase items at a fixed price (Gomes-Casseres, 2001). The function is very similar to eBay stores that allow sellers to own a virtual shop on eBay. By 2003, 26% of all the deals made on eBay were based on trade activities using the feature of buying items at fixed prices (Gomes-Casseres, 2001).

The founder of eBay, Omidyar, had envisioned the company to be a C2C market where the basis is established in a way that services and products are traded between private and companies’ customers, which is called the B2C market. Expansion of eBay to include C2C and B2C markets has increased the number of new products on the eBay’s platform. It has attracted many buyers as their needs are now satisfied.

Current Amazon Strategies

Growth is the primary management strategy at Amazon. It focuses on benefiting customers by offering a broad range of services and products at affordable costs. It also improves customers experience to increase the number of sellers and customers that uses Amazon. The company’s logo has changed over time to accommodate the ever-changing offerings that the company provides for its clients, indicating strategic flexibility and internal expertise.

The other strategy is building the business regarding three main factors that include a wider pool of selection, convenience, and affordable price. The company continuously offers rates that are pocket-friendly without conceding quality of the services and products. Additionally, it provides various retail services and products. For instance, it introduced Amazon Coins and cloud player in 2013. It also expanded the App global distribution to 200 countries, including Papua New Guinea, Vatican City, Mexico, Australia, and South Korea. Other great services of Amazon are developer software and currency converter, as well as cloud computing offerings. Amazon satisfies its customers through online customer reviews and feedback forms on products offered.

Amazon implements integrated cost leadership and differentiation strategy to gain competitive advantage through perceived uniqueness and affordable product cost. Such approach engages in supportive and critical activities that allow Amazon to pursue low cost and differentiation at the same time. It is also called the best cost strategy.

More importantly, Amazon also stays loyal to customers regarding differentiated and affordable products even with the current competition from Netflix and eBay. When there are substitute products, Amazon remains loyal to its clients and provides unique products at low cost. Such strategy helps in maintaining customers for a long time. Additionally, Amazon has long-term investment decisions. Bezos, the CEO of the company, noted that the investment period takes 5-7 years and is only changed when they realize its modest impact on the economy.

Amazon’s Figures and Changes

Amazon is the top e-retailer in the U.S with total net sales of over 88.99 billion U.S dollars by 2014. The large part of the company’s revenue comes from sales of electronics and the media. Currently, the e-retailer has over 294 million customers worldwide who are actively using the company to purchase items. The company is considered a valuable brand as it has a global reach and scope.

The company also leads in desktop retailing and mobile commerce. By the beginning of 2014, over 14 million people in the United States aged between 25 and 34 years were using mobile phones to access and buy items on Amazon. Data also shows that the company has also been converting mobile users to website users. Approximately 7% of Amazon users globally were accessing the web portal using mobile phones and after purchasing items, they have become visitors of the website to check items available and to buy things they need.

The company offers the range of Kindle electronics, which is a line of personal electronics. Initially, the company provided basic e-reader, but at present Kindle influences sales of books. Currently, Kindle Fire Tablet offers devices that consume the media in the Amazon ecosystem. Amazon Prime is a service provided by the company that allows users to pay for annual membership. In addition, the subscriber receives an opportunity to enjoy free shipping of two days in the United States. Additionally, the subscriber receives discounted rate of one-day shipping. Amazon Prime is open to many countries and expanded to provide live streaming of television shows and movies through the Amazon contemporary music and videos platforms. The average expenditure of online members of Amazon Prime within the United States amounts of approximately 58 dollars for every transaction, while people who have not subscribed have an average cost of 41 dollars for every transaction.

SWOT Analysis

Amazon

The resources and operation of Amazon show potential weaknesses and strengths. The available internal resources help maximize performance and productivity. Efficient operations increase cost. Therefore, Amazon should utilize internal resources to produce and provide quality services and products globally at a low cost. Amazon uses its leveraging information technology and e-commerce to drive competitive advantage (Byers, 2007). Therefore, with a current high number of internet users, the company increases its customers’ base every day. The company has exclusive distribution and logistics systems that enable it to actualize customer fulfillment, allowing it to compete with its rivals.

Nevertheless, the company also faces weakness regarding the issue of spreading in diversifying strategy. Its core competence is in selling books online but it had ventured into other areas, deviating from its strategic advantage. Free shipping services provided by Amazon can make the company lose its margin. Therefore, such strategy does not help the company increase profits. Amazon only deals with online retailers, which is the single-driven focus that can affect the company during expansion plans to emerging markets (Byers, 2007). Additionally, Amazon’ business models work close to zero margins, which has reduced profits. The company gains high revenues, but profits are not translated meaningfully.

The external environment determines threats and opportunities facing a company and helps implement effective organizational strategies that increase performance. Amazon’s external environment is characterized by social, cultural, and technological factors, as well as competitive rivalry. Economic and political factors affect currency stability; hence affect Amazon’s performance by increasing production cost (Byers, 2007). Such external factors can be addressed by having strategic leaders who can translate effective decision-making that improves performance. Opportunities include introducing new products, sharing market growth, operational efficiency, and provision of quality services and products.

Amazon also faces the threat of competition from existing and new market entrants or substitutes in the market, such as eBay. The risk should be addressed by performing extensive research and embracing programs that help develop new ideas. It should also introduce aggressive marketing strategies and product promotion. Defining functions of customers and stakeholders can also increase performance (Byers, 2007). There is also the concern over hacking and identity theft that makes customers afraid of shopping using Amazon. Online security and privacy, therefore, should be guaranteed by Amazon to reduce fear among customers. Amazon’s aggressive pricing based on its emphasis on cost leadership have led to lawsuits from rivals and publishers who suffer from Amazon’s operational methods as it takes many customers away.

eBay

Regarding the external environment, eBay faces competition from companies, such as overstock.com and Yahoo Auctions. With the aim of having a large user base, eBay has to lure more customers compared to its competitors. eBay may be popular in the U.S., but Yahoo Auction is popular in Asia. Therefore, eBay must increase competition in various markets. Additionally, eBay faces the issue of people’s perception of risks that comes with online auctions. Since sellers and buyers are strangers, it is difficult to choose legitimate sellers (Gomes-Casseres, 2001). Such fear has resulted in people just buying small items, thus affecting the company’s profits. The company should overcome fear by designing security engines that can determine legitimate and fake sellers. The other issue is substitutes of auctions that buyers can choose, such as traditional auction that has reduced fear but remains to be cost effective.

Internally, eBay strengths include excellent brand reputation since it is known all over the world. It offers a vast marketplace for people. Therefore, the company can readily facilitate fast selling and buying of items. It is localized as it provides a platform where people can use their local languages to make deals (Gomes-Casseres, 2001). eBay uses its payment system PayPal, which helps it earn additional profit. The brand has a good reputation, making it attractive for many shoppers around the United States.

However, the company charges high fees to sellers that keep rising over the years and may result in the fact that the merchants use other alternative methods to online auctions. eBay has not implemented a new strategy on how its growth will be sustained as it is still debating on whether to remain as a retailer company or provide new products (Gomes-Casseres, 2001). eBay can use opportunities, such as making more shoppers use mobile, as well as goods and services portfolio, which will enhance the number of people using eBay to purchase items in order to reduce charges. Opening other online stores in more countries can also increase the number of shoppers on eBay.

Recommendations

eBay should employ more profitable, practical, and less risky options to external political factors affecting the company negatively, such as current instability. It should extend its facilitation and controls by acquiring substantial drop off markets that deliver items to buyers. Such strategy can increase the market share and competence as it reduces the fear of potential buyers in regard to illegitimate sellers (Hitt, Ireland & Hoskisson, 2010). Busy customers can also sell their items without disrupting their schedules at work as the business of selling is done for them.

eBay should also find an alternative payment method that can be used by buyers who do not use PayPal. Buyers may be easily scammed by using payment methods, such as money order that have no security. Such situation can be avoided by proving alternative and secure payment method besides PayPal, as it is not employed by some countries. Devising certification plan for sellers can help filter out sellers with bad intentions towards the customers. Such technique will help increase trust between sellers and buyers. Sellers will also be assured that they are dealing with serious buyers. Additionally, eBay should devise a shipping calculator of delivery companies, which can be used by traders to estimate price of shipping items.

Amazon’s objectives, mission, culture, and vision have great influence on how it conducts its activities. Strategic leaders should be hired to predict potential results on important decisions of the company. Such leadership should also propose innovative technologies that can make buying easies (Hitt, Ireland & Hoskisson, 2010). Environmental scans should be monitored and conducted because the company works on a global scale. The scans can help develop effective strategies that would reduce cost and increase differentiation.

Amazon should embrace local mortar and brick retailers that can assist the company connect with customers in different ways. The company should improve provision of information concerning products and make it accessible through smartphones and data location. It will help improve a relationship with new clients and send relevant information to customers about items they may need. Amazon should also combine both offline and online shopping experiences that can satisfy needs of all customers who can and cannot access company’s website (Hitt, Ireland & Hoskisson, 2010). Moreover, the company should focus on providing relevant products, deals, and offers that are affordable to most customers.

Newspapers play a significant role in maintaining a healthy relationship with local people and communities. Amazon can utilize newspapers to reach out local communities’ members who can also access company’s products. Relevant advertisement can be created to show the listings of goods and services through the web, smartphone, and tablet (Hitt, Ireland & Hoskisson, 2010). Such techniques offer offline and online models that can benefit the retailer through providing physical stores and benefit the media by adding advertising revenues.

Conclusion

In conclusion, Amazon and eBay are online retailer companies that are aware of the fact that competitive advantage is the tool that will make them survive in the competitive market. The companies should embrace changes at organizational and corporate levels to compete with other firms offering the same services. Addressing issues that are related to online services, such as insecurity, as well as provision of quality goods and services help the companies attract more customers, retain the existing ones, and gain more profits. The companies should also embrace offline modes through media advertisement and newspapers that can help reach out local communities’ members who visit online portals not very often. Utilizing security engines on the Internet, such as certification, can help identify sellers and buyers who have bad intentions.