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VALUE CHAIN ANALYSIS 2

Value Chain Analysis

Unit 4 Individual Project Assignment

Sarah B. Kanso

GB570 Managing the Value Chain

Professor Dr.:  Rita Gunzelman

Kaplan University

April 20, 2015

Running head: VALUE CHAIN ANALYSIS 1

Value Chain Analysis

Analyzing Amazon’s Value Chain;

Amazon.com is the global leader in the E-Commerce industry. The company was founded in 1994 by Jeff Bozos with an Initial Public Offering in May 1997, and is headquartered in Seattle, WA.[footnoteRef:1] The company operates in two segments, North America and International.[footnoteRef:2] With 38.8% market share, Amazon.com dominates the highly competitive E-commerce industry.[footnoteRef:3] By being a pioneer in the industry and continuing to be innovative, Amazon.com has found a place as one of the top 500 companies in the world according to CNN.[footnoteRef:4] [1: ] [2: ] [3: ] [4: ]

The E-commerce industry has a few specific traits that describe the competitive landscape within the industry. To begin, the industry is highly competitive. With low barriers to entry, new competitors can easily enter the market and this creates intense competition within the industry.3 Next, a once U.S. dominated industry is slowing becoming more global. A higher percentage of revenues are being generated from overseas than has been seen in the past within the industry.3 Finally, the E-commerce industry is a growth industry. The expected industry growth rate exceeds expected U.S. GDP growth rates.3 In conclusion, the E-commerce industry is characterized by intense competition and high growth.

The value chain may be one of the most important factors in a business when it comes to a customer satisfaction based company such as Amazon. The value chain is one way that Amazon can ensure they have a competitive advantage against other companies in their industry and also ensure customers are receiving the utmost best value possible. Amazon’s mission statement states, “Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online” ("Faq's,"). This shows that they want to ensure their customers receive only the best, which can be done through their value chain. The value chain has processes that create and add value to raw materials that can be continued onto the consumer or customer. Michal Porter stated that the value chain consists of inbound logistics, operations, outbound logistics, marketing and sales, and service activities (QuickMBA, 2010). Each process in the value chain creates value to the customer.

The first process of the value chain is inbound logistics. In this stage Amazon would gather any information that may be related to any purchases and gather the customer experience with those purchases. This is where the purchase orders would be placed. The customer experiences would help control any issues that have already risen. This is the part of the value chain that would ensure the process or placing an order runs smoothly.

The next step in the process is operations. This step would involve the actual process of the purchase. This would be where the payments would be posted and customers would have the option to leave feedback. It is where all the orders would be looked at and sent to the warehouse for processing. This stage is where the value is added in the amount of time it takes the order to be received at the warehouse and the time it takes to get the product to transportation.

The third stage is outbound logistics. This is the stage where the transportation occurs. The value in the transportation is very important. Amazon wants to ensure their deliveries are being made on time and their products are arriving without any defects. The value in this stage is to ensure the time it takes to get the product to the customer.

The fourth process marketing and sales and can have a great impact on future purchases from customers. Provided ensured value at this stage can ensure that a customer will return for their next purchase. Amazon has a way of recommending products to members online at check out. This adds value by providing other options to customers that may intrigue them. They also have marketing and sales by providing free delivery on a certain transactions, discounts, and price reductions when you purchase a suggested product.

Lastly, but just as important, is the service activities process. This is where amazon shines and shows what they have to offer that gives them a competitive advantage against other companies. They offer a free 30 return policy if the item does not meet the correct needs of the customer. They also have a price comparison of the difference between the new and used options available. They want to ensure all their service activities show they are their for the customer at all times to help as much as possible.

Demand Chain Analysis

The value chain is made up of the supply chain and demand chain working together. The demand chain is a “web of business processes and activities that help firms understand, manage, and ultimately create customer demand” (Walters & Rainbird, 2007). The demand chain takes a few processes of the value chain, such as marketing and sales, and ensures that all customers will receive the products or services they want. When it comes to Amazon they have a demand chain in place to ensure all customer will receive the product they requested. These next sub categories will go more into depth of Amazon’s demand chain.

Identification of Customer, Market, Wants and Needs

Amazon’s target markets are those individual that are willing to shop online. They are focused on customers that don’t have the time to go to a physical building and find ease in shopping online. It is also focused on those customers that want service that is fast and easy. With the average lifestyle becoming more and more busy, Amazon is able to target a market that is growing. Those that are able to work with technology enjoy the option of saving time and money by purchasing items online. As a student, Amazon has targeted students also with their textbook options. They have a market for not only items that customers want, such and jewelry and knick-knacks, but also items that customer may need, such as textbooks. They also have a market in global countries that partner with other companies worldwide.

Market Opportunity Analysis

“A market opportunity Analysis is a prime tool to determine attractiveness and probability of success in the growing market” (Drypen, 2008). This analysis ranks the success probability from high to low and also ranks the attractiveness from high to low. Amazon is a great company with many opportunities to grow. CEO Bezos states that with the increase in technology they are looking towards the smartphone innovation. With individuals all expanding their products in the wireless world, amazon is trying to seek that expansion also. Amazon has also realized that the social network craze is another opportunity for growth. They are not sure what opportunities can be available for them, but they want to look into that option also (Thau, 2011).

Identification and Analysis of Value Drivers

Value drives are “entities that increase the value of a product or service by improving the perception of the item and essentially providing a competitive advantage” ("Value drivers," 2012). One way that Amazon could add value to its customers is by ensuring they are constantly up to date with the current technology they offer and use. By ensuring they offer the newest products, customers will see that they are providing all they can. Another value drive would be the Amazon.com application. Being able to provide an application for cell phones increases the value to all customers. Customers have the ease of shopping wherever they are.

Value Proposition

Value proposition can be very similar to value drivers. It is the value that is provided to customers through their products and services. It is about the fact that customers will pay for a certain value that they perceive as fair. The value proposition takes the marketing from the value chain and the value of the products and shows customers that their products or services they offer are worth more then those of other companies. This is where competitive advantage can be a great help. The value proposition starts from ensuring the company knows what its target market is and aims to please them. It then goes to ensure their products and service are of the utmost quality and the costs associated with them are fair. A customer will pay what they believe is fair for their product. This is the value proposition that if a customer believes it has value they will be willing to pay the price for it.

Value Proposition as related to Demand Chain

Amazon will always look for new ways to ensure their customers are receiving the best value they possibly can for the products they have. They offer many different options of products, which add value to the company to ensure you are purchasing the product that fits your needs or wants. Another way Amazon relates their value proposition to the demand chain is by ensuring their mobile application is always up to date and working. Being able to provide their customers with the ease of use of the application adds value to the demand chain, as customers are more willing to purchase products.

Value Proposition as related to Supply Chain

The supply chain is just as important as the demand chain when it comes to the value proposition. This brings customers value even though they may not notice it. The best way for Amazon to have a great value proposition for its supply chain is to control their inventory. If amazon can ensure their inventory is always fully stocked, but not overflowing, that can transfer to the customers. If the inventory is fully stocked, the value to customer is greater as they have the options to purchase different products. If the inventory is overflowing, or depleted, the customers will loose value as items may start to cost more as the cost of holding inventory increase, and not having enough product can cause an increase in demand causing an increase in cost. The value associated with the supply chain is just as important as the value associated with the demand chain.

Supply Chain Analysis

The supply chain is very important in the value chain process also. It works hand in had with the demand chain. It is a system of processes that take place to get a product from a supplier to a customer. It is the operation behind ensuring the products that are purchased by the customers are on hand and available to the customers at all times. Amazon has a very sophisticated supply chain that consists of many different stages. It consists of warehouse management, transportation management, inbound and outbound shipping, demand forecasts, and inventory planning.

Value Production and Coordination

Production is a very important step in the process and a great way to add value to the supply chain. The cost of producing items can be extremely expensive and can reduce the value. Coordination can also have a great impact on the value associated with Amazons supply chain. One of the most recent topics of conversation is the topic of outsourcing. This is a great way for companies to add value to production and coordination as it is saving them money initially. As for Amazon, they can add value to their production and coordination by ensuring all the sellers are prepared to sell the items they have listed. They need to ensure that all the manufactures of the items are also prepared correctly and have added value to them. The better the quality and lower the price of these products, the better the value to the customer.

Value Delivery

Delivery is extremely important in a company that is Internet based. Without the delivery of the products, the value to its customer would not exist. If customers were not receiving their products in the time stated, the value for those customers would decrease greatly. Another source of delivery is the customer service in general. Amazon is dedicated to ensuring that customers receive the best customer service at any time. Being able to contact Amazon is what adds value to their delivery.

Value Servicing

Value servicing is about the way the value is delivered through its employees. Amazon employees work very closely to those customers that need assistance. If a customer needs any assistance they can call Amazon and receive the service they require. This adds value to a customer, as they understand if they can’t process their request online there is someone to help them do so. Customer service is the number one way to ensure value is created and spread to your customers. Amazons mission statement mentions that they are about the customer receiving the best value at all times. In 2011, Amazon.com received the customer choice award for the number 1 position in customer service. The new technology and use of emails as texts as a source of communication have added value to this company and has made customers able to communicate with employees at all times (Goodfellow, 2012).

Enterprise Value

Enterprise value is a firm’s total value and shows how much the business is worth. It is calculated mathematically by adding equity value, net debt, noncontrolling interest, preferred stock and capital leases. It is a way to see what another firm may pay for the company if it were to be sold. Equity value, also known as market capitalization, is the residential interest after paying off any other claims to the company. Net Debt is calculated by taking the total debt of the company and subtracting the cash and cash equivalents. Noncontrolling interest, also known as minority interest, is the interest of noncontrolling shareholders in the net assets of a company. Preferred stock is a financial liability that is equal to its liquidation value and included in net debt. Capital leases are items that are recorded as an asset on the balance sheet and the payments are recorded as a debt ("Enterprise value,"). As of November 21, 2012 Amazon’s enterprise value was listed at $98.8 Billion ("Yahoo," 2012).

Industry Drivers

Industry drivers can be many factors that can affect a company. They can be market, economical, environmental and competitor factors. For the e-retailing industry it is all about low prices with an ease of use. Being able to provide the best prices for the best quality is what will make a company stand out in this industry. Also providing the best customer service is what makes a company in this industry strive. Providing your customers with fast, cheap, great quality products is what drives the competition in this industry. Amazon is able to compete with other companies using these industry drivers to ensure it doesn’t fall behind.

Competitive Advantage

Competitive advantage is extremely important in a business. The value chain, supply chain, and demand chain all play an important role in competitive advantage. It is when a company can exceed the expectations of the customer and compete against other customers. Amazon has many competitors. A few of them are ebay.com, walmart.com, overstock.com, Barnes and Nobles and any other companies that offer online shopping. Amazon has a competitive advantage against some of these companies. For example when it comes to Barnes and Nobles, Amazon is ale to offer more products then them. For walmart.com and ebay.com they may have more competitive advantage against Amazon.com as they have a greater portfolio and wider audience. Wal-Mart has physical stores that give it a competitive advantage, and ebay.com have covered a larger geographical scope. One thing Amazon.com has working for them is the brand image. Most customers have brand loyalty with this company, which gives them competitive advantage.

Customer Delight

Customer delight is when the company has the ability to exceed customer’s expectations and offer more service then the customer is expecting. Amazon does have a sense of customer delight. In an article by Andy Hanselman there are 6 ingredients to customer delight. The “wow” reaction, an unexpected service, personal touch, valued customer, genuine gratitude to customer, and “talking point”. These points compared to Amazon.com show that customer delight is a factor at this company. They want to ensure all customers receive a service that was unexpected. With the option of free shipping on certain purchases they are able to wow the customer. Being able to provide personal accounts and customer satisfaction ensure customer feel genuine gratitude and they feel valued. Being able to sell products is another way Amazon.com shows the customer they are valued as they are part of the business (Hanselman, 2011).

Conclusion

In conclusion the value chain is extremely important to a company. The demand chain and supply chain all work together to create a value chain. Enterprise value and value proposition are also important steps to ensuring the overall value of a company is understood. There are many factors that go into determining a companies overall value. Through this research paper Amazon.com has shown great value in all these departments. It has a strong supply and demand chain, and also has great value proposition and a large enterprise value. Amazon.com has shown that it has a very effective value chain that ensure customer are received the best value possible. They have mentioned ways to improve, and future plans to continue to grow their value chain. References

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Goodfellow, P. (2012, August 08). Amazon. Retrieved from http://www.forbes.com/sites/prospernow/2012/08/28/amazon-1-in-customer-service-but-will-this-lead-to-sustainable-loyalty/

Hanselman, A. (2011). The 6 ingredients of customer delight. Social Media Today, Retrieved from http://socialmediatoday.com/andyhanselman/551048/6-ingredients-customer-delight

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