The Technology behind Amazon Success in Distribution

This report is an analysis of the technology and innovation behind Amazon’s effective distribution strategy. The organization’s innovative approach to supply chain management ensured that the ordered commodities are delivered to the right customer faster than in case of other players in the sector. The use of tracking Apps and an automated warehouse are the technological innovations of the company that have contributed to its success in distribution. A drone-based delivery system that is yet to be launched by the company is expected to improve Amazon’s distribution success further. While Amazon has maintained its position as the global leader in online retail through continued technological innovation, high operation costs and reducing profit margins threaten its future position in the sector.

Aim and Objectives

Aim

Amazon is a distribution success story. To what extent does technology contribute to this success?

Objectives

• To review the history of Amazon
• To critically review and compare Amazon’s distribution strategy to its competitors
• To analyze and compare the marketing mix (place) of the company to other main players
• To Determine the importance of Amazon’s distribution strategy to current and future customers
• Make Recommendations to Amazon on the findings attained

Literature Review

History of Amazon

Amazon.com started as an online store dealing in books to various consumers in the USA in the year 1994. The mission of the organization at inception was to avail a retail platform to consumers where they can access and purchase books at the lowest price possible. Amazon managed to sell a significant number of books in the USA and other countries during few months of its operations (Dennis & Nonnenmann, 2014). This led to the expansion of the business to offer more products in the year 1998. The company’s range of products included electronics, movies, and music. Further, in the year 2000, Amazon developed a marketplace, allowing other producers to sell their products through the company’s platform (Easter & Dave, 2017). The significant business expansion justifies the higher revenue attained.

Substantial growth of the company’s web-services was reported in 2000s. The organization begun offering cloud computing services to its clientele and survived the competition from other players such as Alibaba. The company further ventured in the development of its own hardware, reducing significantly its operating cost. The company launched Kindle-e-reader as its first hardware in the year 2007 (Easter & Dave, 2017). Other forms of hardware were released in the subsequent years with the most significant being the Amazon Fire HD tablet in the year 2012. More products have been availed by the company in the recent times focusing mainly on entertainment and grocery. As at the year 2015, the company attained a higher market capitalization than most retailers owing its wide product and service range (Easter & Dave, 2017).  The company has attained a higher clientele of 182 million and reached $5 billion sales volume  (Izogo & Ozo, 2015). Today Amazon is considered a significant player in the global retail market, owing to the large customer base and performance it reports.

The success story of Amazon began after its adoption of strategies that differentiated it from other retailers in the industry. The company considered the implementation of three main strategic approaches to enable it to register a higher performance level. Low-pricing, enhanced customer satisfaction, and rapid shipment were the long-term strategies proposed by the organization to enable it to survive the competition in its subsequent years of operation. As currently observed, the fair prices offered by the company and its wide range of products have resulted in highly satisfied and loyal customers. Also, the effective distribution strategy through the integration of technology has improved its competitiveness in the retail sector.

Despite the higher level of performance reported by the organization, it still faces significant challenges. The low-pricing strategy and low-profit margin enabled the company to penetrate the market. However, the approach currently threatens the competitiveness of the firm in the industry. The higher operational costs incurred by the company to manage its innovations have further affected its profits growth (Youderian, 2014). The intense competition posed by other retailers such as Alibaba is another challenge for the company. Even though Amazon is considered a successful distributor, the company needs to revise some of its operational activities to survive the competition in the industry.

Amazon Distribution Strategy

The focus of Amazon since its inception is to deliver commodities to the right consumer at the right place and time. The company, therefore, implements an effective distribution strategy to ensure they achieve the above-stated goal. Initially, Amazon relied on traditional third-party logistics firms, such as UPS, FedEx, and USPS to manage its distribution services. However, the company has been involved in the construction of many warehouses across the USA to eliminate the third parties and attain a same-day delivery of commodities (Burnson, 2016). The increasing number of store in different locations makes it possible for Amazon to meet the needs of the customers through timely delivery of the ordered goods.

Integration of technology into the distribution process further improves the effectiveness of the organization in product delivery. Amazon currently operates an automated warehouse that does not only save on operational costs but also protects the distribution time. According to Burnson (2016), the use of robotic technology allows Amazon to choose, pack, and sort shipments without the use of human labor, reducing the expenditures further. The robotic machines also support quick and efficient management of the shipment. To further improve inventory management, Amazon automated warehouse is controlled by humans who ensure that any errors and system failure are timely addressed (Knight, 2015). Besides reducing the product acquisition time from the warehouse, automation of the Amazon storage facilities has resulted in an efficient inventory management process.

Besides the robotic technology, Amazon uses a tracking application to manage its warehouse operations. The mobile application offers pre-checking services to cargo drivers assigned to deliver materials to the warehouses. Amazon is thus able to have better visibility of the cargo location to timely prepare for arrivals (Banker, Cunnane & Reiser, 2018). Even though the technology is designed only for the management of delivery to Amazon warehouse, there is a proposal to expand it to offer freight matching services. The efficient and effective management promotes quick and efficient delivery system.

Amazon started the development of a drone-based delivery system in the year 2013. The idea was to further reduce the delivery time to 30 minutes or less for consumers living close to Amazon fulfillment centers (Midrack, 2018). Amazon vision was to create fleet vehicles with self-operating technology to enable them to function independently of humans. There were hurdles along the developmental stages of the technology; however, Amazon has made tremendous steps to make the technology a reality. An official launch date for the Amazon drone-based delivery program has not been communicated, though being at the testing stage it is likely that the program will be available for use in few years.

Amazon faces direct competition from Alibaba that offers similar online retails services. While the product description, recommendations and tracking systems offered by the two companies are alike, the source of competitive advantage varies (Xu, 2016). Alibaba emphasizes the development of effective payment and customer communication system, whereas Amazon has put more emphasis on creating a trusted tracking and delivery system, justifying its efficiency and overall higher performance in distribution.

Amazon delivery system allows users to track the location of the ordered product to avoid uncertainty. Also, the organization promises cheaper and faster delivery of a parcel due to its technology integrated distribution systems. Consumers that are part of the Fulfillment by Amazon (FBI) program receives storage and delayed delivery services for commodities that are not urgently needed (Xu, 2016). For consumers, such services do not only improve their trust to the organization but also offers maximum security when engaging in the online business.

Even though Alibaba has a tracking system that allows consumers to follow the movement of their parcels, the organization does not promise a faster delivery. The company has no direct control of the product delivery system since it is done by third parties who sell their commodities over the platform. Also, the organization does not guarantee storage and delayed delivery services because it does not operate a warehouse (Xu, 2016). Alibaba specializes in intermediation services thus puts less emphasis on offering efficient and reliable delivery services to its customers. Amazon has therefore managed to develop an effective distribution system that offers benefits to consumers.

Marketing Mix (Place)

Amazon operates an official e-commerce website and warehouses to reach its customers. Web platforms such as Amazon.com and Audible.com are the primary places where the company interacts with its e-commerce clients. The company, however, has physical warehouses where its stores the commodities traded over the websites. Also, Amazon has a physical bookstore that allows the organization to reach consumers who want to evaluate the products before making a purchase. On the other hand, Alibaba reaches the consumers through the e-commerce website; however, the organization does not manage any physical store.

Contrary to Amazon that stocks its products, Alibaba acts as an intermediary between sellers and buyers allowing third parties to sell their products over the platforms. The company does not have to deal with the complicated logistics issues involved in warehouse management. This explains the higher profit margin and a rapid growth rate that the company enjoys compared to Amazon that has continually reported lower profit margin due to its intricate logistics and supply chain (Youderian, 2014). Despite the better performance, Alibaba has limited control over its distribution services. Also, the failure by Alibaba to operate a warehouse limits its ability to expand into the global market. Even though the company currently enjoys an increasing business growth, its future performance can be curtailed by Amazon that has embarked on an expansion of its services to cover a wide geographical area in the global market.

Methodology

A survey was conducted to determine the perception of customers about distribution methods and their significance when making a purchase decision. The participants consisted of university students. A random sampling technique was adopted to achieve a proper representation of the population.

Questionnaires were used to collect data on the reasons for shopping online, criteria used for selection of an online retail shop, the significance of distribution method as selection criteria and the participants’ knowledge of Amazon. The collected data were used to ascertain the importance of distribution channels to the existing and potential customers of Amazon.com.

Confidentiality of the information presented by the participants and informed consent are the ethical issues considered in the study. The participants were informed of the nature of the research and its purpose to acquire their permission on participation. The confidentiality of the information presented was assured by not disclosing the response to third parties and by using the data for research purposes only. Participants were also not required to write their names in the questionnaires, further meeting the confidentiality requirements. Proper management of the ethical issues contributed to a successful research outcome.

Summary of Findings

The results confirmed the importance of expected factors. The data collected from the survey shows that convenience is the main reason for making an online purchase. The participants also indicated that constraint in time influenced their decision to make online purchases. Most of the participants knew Amazon and had used its services. Others who had not used the platform were willing to do so. However, they were more concerned about the delivery time and the quality of the product delivered. A significant percentage of the participants indicated that timely delivery of the right product at the correct place and time was the primary factor they considered when choosing an e-commerce platform. These participants did not care much about the prices, but emphasize the effective distribution strategy employed by the organization.

Discussion

From the review of the literature and the survey findings, proper distribution is essential in online retailing. Most consumers desire to achieve a convenient purchase experience; thus, timely and appropriate delivery of their parcel is vital. As observed, Amazon commands a lead in distribution innovation and effectiveness. The automated warehouse and tracking applications have contributed to the success of the company in its distribution. The timely and effective delivery of parcels that Amazon promises indicates that the company is likely to attract more customers than Alibaba. Better performance in sales is expected when the drone technology that is being developed by the organization is launched. The implications of operating such an effective distribution system are enhanced customer satisfaction and increased sales volume.

Despite the possible higher performance, Amazon has to deal with the rivalry stemming from Alibaba, a China-based online retailer. Alibaba has reported a higher growth rate and profits margin than Amazon in the previous. The simple business model implemented by the organization favors its ability to achieve a high-profit margin despite its lower sales volume. The involvement of Amazon in other investments, including building warehouses, has negatively affected the company’s profit margin. Even though such investments improve the organization’s capacity to expand to the global market, it threatens the position of the firm in the industry. It is essential that the company improve its profit-margin to survive the expected high competition in the sector.

Conclusion and Recommendations

The integration of technology in Amazon’s distribution system has fueled the success reported by the organization. The company has been able to report a higher level of customer satisfaction and increased sales volume due to its timely and efficient delivery system. Since timely delivery as a vital factor in choosing an online retailer, Amazon is likely to attract more clients leading to its enhanced performance. However, the company is likely to face stiff competition from Alibaba that has reported higher growth rate and profit margin than Amazon. The involvement of the company in the construction of warehouses has improved its ability and capacity to reach other global markets. It is thus recommended that the organization moves into the untapped market to attract more clients and grow its sales. Amazon should also focus on efficient use of existing resources to reduce its operating costs, to improve its profit margin.