Amazon’s Cost Leadership and Differentiation

Introduction

As a generic strategy for achieving a competitive advantage in the e-commerce industry, Amazon uses cost leadership. This strategy implies the minimization of operational costs in order to reduce prices for customers and thus be competitive against other retailers that also offer low prices. Amazon has invested in technological advancements such as computing and networking for maximizing its operational efficiency and minimizing costs (Zongwei, 2013). Since the market of e-commerce has to follow such trends as variety, low prices, and operational speed, Amazon benefits from its automation when it comes to the processing of purchases, the scheduling of shipments, and other procedures. Overall, Amazon managed to achieve cost leadership through innovation and automation.

Differentiation is another generic strategy that Amazon implements for achieving competitive advantage. This strategy is associated with developing unique services or products that clients will find superior in comparison with competitors. Amazon managed to implement the strategy by offering customers an abundance of products as well as a variety of ways to get them. Clients can purchase from Amazon through a website or an app, without having to visit physical stores. Through the integration of unique software and algorithms, the company enhances the operations of its employees while also ensuring that customers get their orders as soon as possible. Therefore, innovation and automation helped Amazon to achieve a balance between cost leadership and differentiation. For example, the new Amazon robots form orders much quicker, making their fulfillment easier. Also, the lenient return policies contribute to customer satisfaction and set Amazon apart from its competitors, even such retail giants as Walmart and Target that also sell their products online.

Company Achieving Cost Focus

According to the breakdown of Porter’s generic strategies, the focus strategy is characterized by the concentration on a specific niche market. Therefore, the cost focus strategy is associated with companies finding a unique market of customers that has some specific cost requirements for products that they buy. Luxury goods businesses are the best examples of cost focus because they target a niche market of wealthy consumers who value the exclusivity aspect of their purchases. For instance, Louis Vuitton has attained a cost focus strategy by maintaining its clientele for decades and preserving prices on a high level. The advantage of the company is sustainable on a long-term basis because Louis Vuitton has worked to collect the clientele and to keep them interested. The changing designs with the preservation of the unique style help the company keep their old customers and attract new ones (Verbeke, 2013).

When it comes to Luis Vuitton’s five forces as outlined in Porter’s framework, several facts should be mentioned. While the competition in the luxury goods industry is persistent, Louis Vuitton is not threatened by new entrants because the company has decades of experience in the field. Working with reliable suppliers that source materials for their luxury goods, the company has the power to set its own prices. Substitutes do exist, especially from brands such as Gucci; however, the preservation of the image still keeps customers interested. The only issue that may limit Louis Vuitton’s cost focus strategy is the economic environment in the market. When the economy is good, people will be more interested in investing in luxury products. This means that luxury companies depend on the wealth of their customers due to the cost focus strategy.

References

Verbeke, A. (2013). International business strategy (2nd ed.). Cambridge, UK: Cambridge University Press.

Zongwei, L. (2013). Technological solutions for modern logistics and supply chain management. Hershey, PA: Business Science Reference.

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NerdyTom. 2022. "Amazon’s Cost Leadership and Differentiation." June 5, 2022. https://nerdytom.com/amazons-cost-leadership-and-differentiation/.

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NerdyTom. (2022) 'Amazon’s Cost Leadership and Differentiation'. 5 June.

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