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Amazon’s Business and Corporate Strategy

Capella University
MBA-FXP5006 Business Strategy
January 22, 2025
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Generic Business Strategies

Amazon has focused on a middle ground approach to their generic business strategy by utilizing
both a cost leadership model as well as a differentiation strategy. The cost leadership strategy can
be described as seeking “to create the same or similar value for customers by delivering products
or services at a lower cost than competitors” (Rothaermel, 2024, p. 213). This structure is useful
for companies that hope to create a strategic advantage by providing lower cost items that are
similar in quality to direct competition. A differentiation strategy is defined as seeking to “create
higher value for customers than the value that competitors create” (Rothaermel, 2024, p. 213).
This strategy is useful to companies who hope to create a unique enough product or service that
they can afford to charge as much or more than their direct competition.
Cost Leadership Strategy
A major factor in Amazon’s ability to use a cost leadership strategy is their focus on creating and
maintaining a warehouse system that is based on lowering operational costs. This is the result of
Amazon’s six pillar approach. One of the pillars is operational excellence. This is an effort by
them to focus on organizing teams based on the desired business outcomes, automating as much
as they can while maintaining their safety protocols, utilizing small, but frequent, changes for
optimization, and refining their operations frequently enough to show continuous improvement
in all areas (“Operational Excellence, n.d.). This commitment to maintaining an efficient
operation has allowed them to minimize overhead throughout their primarily ecommerce based
business.
Another way that Amazon has been able to maintain low costs compared to direct competitors is
that they have very few physical store locations that are based around their more niche markets
like Amazon Go and Amazon Fresh. Conversely, their most direct competitor, Walmart, has
10,660 physical storefronts that need to be staffed extensively (“Location Facts”, 2024). Walmart
has 4,606 locations in the United States alone that not only need to cover staffing costs, but also
the costs associated with utilities to keep the lights on, and stores heated and cooled.
A third way that Amazon utilizes a cost leadership strategy is to create their own wide range of
private label brands. In 2020 Amazon had at least forty-five individual private label brands (“In
the Battle for the Customer”, 2024). This allows Amazon to keep their prices low by having an
extensive list of product alternatives that they have sourced for themselves. Another way this is
helpful in keeping costs low is that it helps to show suppliers the potential independence of
Amazon from the higher priced products that suppliers are offering and help to influence the
lowering of costs from those suppliers.
Differentiation Strategy
The primary aspect of Amazon’s differentiation strategy is that they offer the most complete one
stop shop for the needs of the average consumer. While many places such as Walmart, Meijer,
and Target have expanded their services to include a wide range of groceries, goods, and
services, Amazon is the only one that provides music streaming, video streaming, grocery
delivery, third party logistics, AI driven smart home devices, cloud computing platforms, and
various other customer-centric products and services. They continue to use a growth based
strategy to constantly drive innovation for what they have and what they will have to offer in the
future.
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Business Strategy
Amazon’s business strategy can be succinctly summed up in their initial mission statement. From
the moment they started in 1994 the goal of the company was “to be Earth’s most customer-
centric company” (“About Us”, n.d.). They have expanded this in recent years to also include
being the best employer as well as the safest place to work. Efforts to fulfill this desire have been
shown throughout the history of the company by their constant development of products and
services that help to benefit customers.
Driving Technological Innovation
As part of their business strategy Amazon has put a great deal of time and money into constantly
driving innovation. This can be seen through their development of smart speakers that utilize
their own AI assistant that they have named Alexa. As of 2020 it is estimated that Alexa is
compatible with over 100,000 different smart devices (“A Comprehensive List of Alexa
Devices”, n.d.) over a wide span of smart home device manufacturers. The reason this is
noteworthy is that it is a display of Amazon following through on their customer-centric strategy.
It is currently believed that Amazon Echo devices are being sold at a loss. While there is the
obvious point that they are selling at a loss to incentivize customers to use Alexa for ordering
products with their voices they have been very friendly with other smart device manufacturers to
ensure that their protocols are easy to use and able to be implemented in a wide range of products
that Amazon will generally not see a profit from.
Market Positioning
Amazon is also an industry leader in the retail market. To do this, they have expanded their
offerings consistently enough to keep customers returning to see what else may be coming down
the pipeline. In 2023 Amazon had a market share of 37.6% of all ecommerce sites with the next
highest ecommerce company being Walmart with a market share of 6.4% (Chevalier, 2024).
When looking forward it is estimated that with Amazon’s expanding market share in the United
States that they will be at 40.9% of the total market share for all ecommerce.
Long Term Growth

Another core aspect of Amazon’s business strategy is the consistent focus on long term growth
through strategic planning. In 2014 many investors were becoming upset with Amazon’s lack of
focus on generating profit. Despite declaring in their 1997 Initial Public Offering that they did
not expect to turn a profit soon, some investors had decided that enough was enough and
Amazon needed to explain how they were going to being to turn a profit (Anderson, 2014). In
response to this, then CEO Jeff Bezos appeared on Business Insider to explain that he had no
intention of changing their long term plan. He would continue to steer the company in the
direction that he felt would help them to be a competitor to retail giants like Walmart and remind
investors that he has never stated that Amazon would be profitable. All potential profits would be
invested into the future of Amazon and helping them to continue to develop their fire based
technologies as well as move into new areas of business. This was important as it showed Bezos’
long term business strategy was to worry about building the business instead of prioritizing the
demands of investors. These statements left no doubt that his desire was to position himself and
the company in the most competitive manner possible against the existing retail giants.
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Business Model

Amazon’s business model is to focus on being a primarily ecommerce based provider of retail
goods and services. While this has expanded into many services over the years the core business
of operating an online store that can provide a wide range of products that every day consumer
will need has consistently been the primary focus of the company.

Core Products

Amazon’s core product list can be summed up in one word: everything. Amazon had humble
beginnings as an online bookstore in 1994 based on Bezos’ understanding that ecommerce would
open an incredible number of opportunities to reach customers that only needed internet access
instead of physical access to a local store. In 1998 Amazon expanded their catalog to begin
including music and movies followed the next year by their expansion into video games,
software, home improvement products, and general gift items (Sherman, 2015). After this time
Amazon continued to add more items year after year as well as entering new markets that
included, but were not limited to developing their own technology, creating AI to be used with
smart home technology, and grocery delivery services.

For many businesses, the expansion into so many different areas is often more of a hindrance in
the long term than a benefit. An example of this would be McDonalds’ expansion of their menu
from their original nine menu items. Over time this began to slow down the speed in which
customers were able to get their food. This caused issues as the core of the McDonald’s brand
was the speed at which they could assemble food using what the McDonald’s brothers called
their Speedee Service System (Plant, 2017). The reason this did not have an impact on Amazon
the way it did many other businesses was the simple fact that the products themselves are not
Amazon’s actual core product. The core product for Amazon is convenience. Anyone can sell a
product that was sourced from a third party supplier, but Amazon was one of the first companies
to offer the ability to do so from the convenience of your own home and have the item delivered.
They have continued to offer innovations, such as their Prime service that allows delivery as
quickly as the same day, which have pushed the boundaries on how quickly an ecommerce
retailer can provide products without requiring the customer to leave the comfort of their own
home.

How Does Amazon Make Money

Amazon makes money by being the largest United States based ecommerce merchant. Amazon
had a rough start with regards to profit in their initial existence. In 2014 Amazon posted a loss of
over $544 million because of their heavy investment in expanding their product lines and the
financial failures of some of those products, such as the Fire Phone. The purchase of video game
streamer twitch for $1 billion was another purchase that was deemed by investors as unnecessary
and helped to drive the previously mentioned call for Amazon to begin focusing on turning a
profit (Popper, 2014). Amazon has since become a predominant powerhouse in a wide range of
products and services resulting in a net income of over $30 billion dollars in 2023 (“Amazon
Revenue”, 2023).
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While it would be easy to assume that the source of Amazon’s income would be the result of
their heavy retail presence in the ecommerce market this only accounts for around 50% of their
gross income. There is another source of significant income that the public may not even
consider in the form of their Amazon Web Services (AWS) division. This accounts for only 15%
of their overall total revenue but is the most profitable division in the company (“Amazon’s
Financial Growth”, 2024). The quick growth of the AWS division because of the long term
investment into technologically based innovation by leadership has resulted in a division that
accounts for 74% of the profit Amazon has seen over the last year (Pizio, 2024).

What is Amazon’s Customer Value Proposition

Amazon’s customer value proposition is threefold. They provide an elevated level of

convenience for the everyday shopper, offer a wide range of products and services to choose
from, and do all of this at a price that is comparable to or less than direct competition in these
fields.

Convenience

Convenience is provided through the ability to order their products and services from any place
that has an internet connection. Amazon has logistics networks built into 20 different countries
that also have their own version of the Amazon website to help provide not just the convenience
of being able to reach the items on the site, but also the reassurance that each of these
individualized websites have been localized to meet all the regulations of that country. In
addition to the multiple localized websites Amazon also utilizes the local warehouses from these
localized versions to provide shipping to 131 countries around the world meaning that at least
67% of the countries in the world have direct access to Amazon products (“Amazon in Other
Countries”, 2024).

Wide Range of Products and Services

The second customer value proposition that Amazon offers is their wide range of products and
services. As mentioned in previous sections Amazon has continued to branch out into many
services in addition to their wide range of retail products. They currently offer Prime gaming,
Amazon Fresh for grocery delivery, Amazon Music Unlimited for music streaming customers,
and Prime Video for customers who want to stream both purchased movies and television as well
as offering members the opportunity to buy digital copies of unavailable for streaming options.
The improved offerings of their Amazon Web Services cloud based services have also offered
both individuals and businesses a cheaper way to enter technologically advanced industries and
hobbies that had previously been cost prohibitive.

Low Prices

The third customer value proposition that Amazon offers is maintaining prices that are equal to
or better than their peers who provide less of the overall total value that are present from the two
previously mentioned customer value propositions. According to an independent study
performed by Profitero (2024), Amazon has managed to show a price advantage of 14% over
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twenty-two other major retailers when comparing the price of 13,000 items for sale. Walmart,
who is also known for their low prices by the public, was shown to have an average price of 5%
more on the same products that Amazon has for sale.

Corporate Strategy

Amazon’s corporate strategy is to continue to expand their product and service offerings by a
rapid expansion into other geographic locations while also adopting vertical integration tactics
into their way of doing business. As mentioned previously, Amazon has worked to expand their
geographic reach through the aggressive expansion into other countries by utilizing both
localized versions of Amazon in the Amazon Global program as well as offering shipping to 131
countries worldwide. This level of reach is one of the reasons that Amazon has become the
biggest ecommerce based retailer in the world.

Another corporate strategy has been to rapidly expand the product line from the original option
of only selling books. This helped to support the long term business strategy of creating an
opportunity for profit in an untested ecommerce market. The expansion has helped to drive
Amazon from a niche business into a worldwide phenomenon that has grown to be not only the
biggest ecommerce retailer in the world, but to be the biggest retailer in the world in general.
Currently, only Walmart has a bigger revenue stream than Amazon, but even then they have a
lower market capacity and a lower net income due to the cost savings that Amazon sees from a
lack of physical storefronts (Johnston, 2023).

Amazon has also utilized a corporate strategy of vertical integration in both its products and the
way the products are delivered. Amazon announced in 2009 that they had intentions of creating
their own Amazon Basics line of consumer electronic products (“Amazon Creates Own Line”,
2009). This eventually expanded to the point where Amazon were not just creating small
electronics, but also developing and selling their own AI based smart speakers as well as smart
televisions that utilize their own FireOS GUI. This allowed them to have complete control over
certain aspects of their business as they controlled the entire means of production from
developing to delivering a wide range of products.

Key Management Systems

Diversification Strategy

Amazon has utilized a significant diversification strategy in their time as a company. Moving
from being a small ecommerce book seller to a global powerhouse of retail and service has
required that they constantly offer newer products in their existing market while also moving into
newer markets through both acquisitions and inhouse innovations. They have purchased many
companies to drive this diversification such as Whole Foods to enter the grocery market, Metro
Goldwin Mayer to enhance their inhouse Amazon Studios, Ring security devices that utilize
AWS powered cloud services, and Pillpack in their attempt to enter the pharmacy delivery
market (DiLallo, 2024). Many of these, and the other companies purchased by Amazon, were an
attempt to either enter a new market or to help bolster their existing attempts at diversification.
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Vertical Integration Strategy

As previously mentioned, Amazon has utilized a vertical integration strategy through their
attempt to add various electronic devices to their store brand offerings. In addition to products,
Amazon has also worked to control their own supply chain. Following a disastrous holiday
season in 2013 that resulted in FedEx showing they were no longer able to manage the volume of
packages that Amazon required of them Amazon decided to announce their own delivery service.
This service, known as Fulfilled by Amazon, eventually allowed Amazon to not only be the
primary delivery service for their own packages, but even allowed them to use their network to
expand into the new market of third party logistics (Goodchild et al., 2024). This level of control
prevented the issues associated with relying on a third party to deliver their packages and helped
them to ensure that they had the correct amount of seasonal help to provide the customer service
that leadership expected to be able to provide. There is also the added benefit of the many
delivery vehicles providing marketing for Amazon due to their high visibility during deliveries.

Globalization Strategy

Rothaermel (2024) defined globalization as the “process of closer integration and exchange
between different countries, businesses, and peoples worldwide, made possible by falling trade
and investment barriers, advances in telecommunications, and reductions in transportation costs”
(p. 378). When this definition is considered Amazon’s leadership has utilized globalization as a
primary method of their expansion. As previously mentioned they have utilized their multitude of
worldwide distribution centers to help create a supply chain that has allowed them to reach 131
countries so far with their products. In addition to this, Amazon can reach even further with their
AWS systems as these can be used by any person or business that has internet access due to the
lack of a need for physical access to a product. Their cloud based approach has unlocked access
to everyone.

Global Alliances

Amazon has a long history of forging alliances with companies that can help to fill a void that
they are experiencing in their business strategy. While Amazon has an extensive presence in
ecommerce, it does not have any form of noteworthy presence in the social media world. In
2023, Amazon created alliances with both Meta and Snapchat to leverage their involvement with
a younger audience that may not spend much time shopping in the same traditional sense that
their existing audience does (Duffy, 2024). This could potentially be helpful as the ads
themselves have incorporated Amazon’s 1 click buy feature so that the ads can function as a
virtual marketplace to complete the transaction. This will allow Amazon to expand their access to
people who may make quick impulse decisions without needing them to leave the social media
environment they are currently investing their time into.

Another noteworthy global alliance that Amazon forged in the past was with FedEx. This
agreement had previously existed with FedEx being the preferred shipping partner of Amazon.
After a disastrous holiday season in 2013 Amazon began to look for a new solution to their
delivery needs and decided to start developing their own in house delivery service (Stambor,
2024). In 2019 FedEx decided it no longer wanted to continue the partnership with Amazon due
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to Amazon’s usage of FedEx mostly being relegated to air freight. This resulted in FedEx no
longer seeing the value of being associated with Amazon and led to them wanting to open their
services to other ecommerce providers. It is currently unconfirmed, but there is a belief that
FedEx has reconsidered breaking this partnership and is attempting to rebuild a relationship with
Amazon.

How Do the Business and Corporate Strategies Fit Together

Amazon’s corporate strategy to expand in a rapid manner to maximize their ability to provide a
customer-centric company that provides goods and services to as many customers as possible
aligns very well with their day to day business strategy. They have utilized both in house
expansion and innovation as well as the purchase of outside firms to create synergy between the
long term vision of the company and the short term goals of the leadership team. They have not
shied away from extreme diversification to achieve their stated mission and have a keen
awareness of when it will offer more value to invest in their own development versus farming
out their needs to whatever company may already be a competitive force in the field they want to
expand into.
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