Amazon Value Chain Analysis
Value chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the business. Figure below illustrates the essence of Amazon value chain analysis.
Amazon Value chain analysis
Amazon Primary Activities
Amazon Inbound logistics
Inbound logistics within Amazon value chain analysis involve receiving and storing raw materials to produce goods and services. Due to massive global scope of its operations the e-commerce giant maintains complex, but sophisticated inbound logistics operations.
Generally, Amazon does not have long-term contracts or arrangements with its vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits. Fulfilment by Amazon (FBA) is the cornerstone of Amazon inbound logistics for company-owned retail business. Moreover, the economies of scale is an important source of value creation for Amazon inbound logistics.
Sellers can also use FBA by stowing their inventory in Amazon fulfilment centres. In this case, Amazon assumes full responsibility for logistics, customer service, and product returns. If a customer orders an FBA item and an Amazon owned-inventory item, the company ships both items to the customer in one box, as a significant gain of efficiency. The use of FBA is an optional choice for sellers and this choice makes the products of third-party sellers eligible for Amazon Prime free two-day shipping, free shipping and other benefits.
Amazon uses logistics beyond the point to serve Amazon Marketplace and starting from recently, the company has been offering logistics services to third parties. For example, Beijing Century Joyo Courier Services, an Amazon subsidiary registered with the U.S. government as an ocean shipping provider.[1] From this point of view, efficient logistics infrastructure also belongs to the list of Amazon competitive advantages.
Amazon Operations
Operations generally comprise the process of transforming raw materials into goods to be sold or the process of providing services. Amazon operations are organized into three segments:
1. North America. This segment operates North America-focused websites such as www.amazon.com, www.amazon.ca, and www.amazon.com.mx. Sales in this segment increased by 18,4% in 2021 compared to the previous year.[2] Although 18,4% can be considered a healthy growth rate by many businesses, this rate is a relatively modest for Amazon because its increase rate is rarely below 20%.
2. International. This segment operates internationally-focused websites such as www.amazon.com.au, www.amazon.com.br, www.amazon.cn and others. Revenues from international operations are subject to changes in currency exchange rates.
3. Amazon Web Services (AWS). This segment deals with global sales of computing, storage, database, and other service offerings for start-ups, enterprises, government agencies, and academic institutions. AWS achieved USD50 billion annualized run rate in 2020.[3] In 2021 AWB revenues increased by 40% to reach USD 17.8 billion
AWS offers pay-as-you-go cloud storage, compute resources, networking and computing services and its major customers include Pinterest, Dropbox, and Airbnb. Moreover, AWS is positioned as a platform for building applications and businesses like GE, Major League Baseball, Tata Motors, and Qantas have built applications ranging from apps for crowdsourcing and personalized healthcare to mobile apps for managing fleets of trucks on the basis of AWS.
A creative and innovative approach to problem-solving is one of the major sources of value creation associated with Amazon operations. Specifically, the tech giant initially developed cloud storage and cloud compute resources for its own business needs in an attempt to sophisticate its business operations. Later the company commercialized cloud services once its benefits became evident.
Amazon Outbound Logistics
Outbound logistics refers to warehousing and delivering goods to the end-user. In the past Amazon had relied upon the services of overnight delivery businesses such as UPS, FedEx and TNT. Amazon has been shifting its outbound logistics operations in-house for the past few years. Specifically, the online retail behemoth has evolved as one of the biggest transportation companies in the world with 400,000 drivers worldwide, 40,000 semi-trucks, 30,000 vans, and a fleet of more than 70 planes worldwide.[4]
Generally, Amazon outbound logistics integrates the following:
1. Fulfilment centres. The e-commerce giant operates more than 175 fulfilment centres around the globe and the company uses robotic technology in an extensive manner to manage receipt, stowing, picking, and shipment of products.[5]
2. Co-sourced and outsourced arrangements
3. Digital delivery. These relate to products and services that can be downloaded from Amazon website.
4. Physical stores. Started as purely online business, nowadays Amazon operates seven different types of physical stores such as Amazon Go Grocery, Whole Foods, Amazon Books and Amazon Pop Up themed kiosks.
Amazon Marketing and Sales
In 2016, Amazon spent more on marketing than Wal-Mart Stores, Target, Best Buy, Home Depot, and Kroger combined.[6] In 2021 alone The largest internet retailer in the world by revenue spent USD 16,9 billion in advertising and promotions worldwide. Therefore, it can be argued that marketing and sales is one of the major sources of value in Amazon chain of operations, but this value is generated thanks to excessive marketing investments.
Amazon marketing message conveys the promises of the largest selection of products and services, attractive prices, fast delivery of products and overall superior customer services. Several components of the marketing communication mix such as print and media advertising, sales promotion, events and experiences, public relations and direct marketing are used in an integrated way in order to communicate the marketing message to the target customer segment.
Amazon Service
Exceptional customer service is a major source of value creation for the e-commerce and cloud computing company. Amazon annual report says “we seek to be Earth’s most customer-centric company”[7] and accordingly, the company offers exceptional customer services. Customers can contact Amazon by phone, email, chat, or social media.
Amazon Marketplace and Prime has two types of customers – sellers on and buyers from Amazon platform. For sellers in particular, Amazon offers Selling Coach program “alerting sellers about opportunities to avoid going out-of-stock, add selection that’s selling, and sharpen their prices to be more competitive”[8].
Moreover, “Amazon’s returns process is dealt with entirely online through a customer’s account. If there is an issue that does require a customer to speak with a customer service assistant over the phone, they will have access to the customer’s account and order details, meaning that any issues can be dealt with quickly and efficiently.”[9] The e-commerce giant offers free returns with no box, tape, or label needed, which is an unprecedented offer worldwide.
Amazon.com Inc. Report contains a full version of Amazon value chain analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Ansoff Matrix and McKinsey 7S Model on Amazon. Moreover, the report contains analyses of Amazon leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Amazon marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[1] Schreiber, Z. (2016) “Is Logistics About To Get Amazon’ed?” Tech Crunch, Available at: https://techcrunch.com/2016/01/29/is-logistics-about-to-get-amazoned/
[2] Davis, D (2022) “Amazon’s North America revenue ticks up 18.4% in 2021” Digital Commerce, Available at: https://www.digitalcommerce360.com/article/amazon-sales/
[3] Annual Report (2020) Amazon.com Inc.
[4] Schoolov, K. (2021) “Amazon is now shipping cargo for outside customers in its latest move to compete with FedEx and UPS” CNBC, Available at: https://www.cnbc.com/2021/09/04/how-amazon-is-shipping-for-third-parties-to-compete-with-fedex-and-ups.html
[5] Why Amazon warehouses are called fulfilment centres (n.d.) Amazon, Available at: https://www.aboutamazon.co.uk/amazon-fulfilment/our-fulfilment-centres/why-amazon-warehouses-are-called-fulfilment-centers
[6] Green, T. (2017) “Amazon spends more on advertising than Walmart, Target, Best Buy, Home Depot, and Kroger combined” Business Insider, Available at: https://www.businessinsider.com/amazon-stock-price-advertising-spending-compared-competitors-2017-6
[7] Annual Report (2016) Amazon.com Inc.
[8] Annual Report (2014) Amazon
[9] Amazon CRM Case Study (2017) Expert CRM Software, Available at: http://crmsystems.expertmarket.co.uk/Amazon-CRM-Case-Study